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DRAFT  BILL 

FOR  THB 

REGULATION  OF  PUBLIC 
UTILITIES 

WITH  DOCUMENTS 
RELATING  THERETO 


AUTHORIZED  TO  BE  PUBLISHED  BY 

THE  NATIONAL  CIVIC  FEDERATION 
OCTOBER  23,  1914 


Digitized  by  the  Internet  Archive 

in  2008  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/draftbillforreguOOnatirich 


MEMORANDUM 

By  Seth  Low  and  William  R.  Willcox  a  Special  Committee  of  the 
Executive  Council  of  The  National  Civic  Federation 

To  Whom  was  Referred  for 

Consideration   all   Questions   in   Relation    to   the 

Draft  Bill  for  the  Regulation  of  Public  Utilities 

In  1907,  the  National  Civic  Federation  appointed  a  Commission 
on  Public  Ownership  and  Operation  to  investigate,  in  this  country 
and  abroad,  the  history  of  such  movements  up  to  that  date.  The 
commission  was  thoroughly  representative,  and  embraced  in  its 
membership  men  who  believed  in  public  ownership  and  operation, 
and  men  who  did  not;  it  embraced  representatives  of  organized 
labor,  and  men  interested  in  the  private  ownership  and  operation  of 
public  utilities;  it  embraced  students  of  the  subject,  and  men  en- 
gaged in  the  actual  regulation  of  public  utilities  as  members  of  public 
commissions.  This  commission  reported  that  public  utilities  from 
their  natiue  tend  to  become  and  ought  to  be  monopolies;  and  that 
unregulated  monopoly  in  so  important  a  field  is  impossible. 

In  view  of  this  conclusion,  The  National  Civic  Federation,  in 
191 1,  called  another  conference  of  people  interested  in  this  subject; 
as  a  resiilt  of  which  it  was  determined  to  create  a  department  to 
prepare  a  draft  bill  for  the  Public  Regulation  of  Interstate  and 
Municipal  Utilities.  Enquiry  revealed  the  fact  that  every  state  in  the 
union  has  a  regulative  commission  of  some  sort,  except  the  states  of 
Delaware,  Wyoming,  and  Utah.  Hence,  the  desirability  of  uniform 
legislation  upon  this  subject,  within  reasonable  limits,  is  evident. 

The  Department  thus  formed  promptly  appointed  an  Executive 
Coiuicil  to  prepare  a  draft  bill.  This  Council  consisted  of  the  following 
members : 

Edward  M.  Bassett, 

Franklin  Q.  Brown, 

Halford  Erickson, 

John  H.  Gray, 

Wniiam  D.  Kerr, 

Franklin  K.  Lane,* 

Blewett  Lee, 

Emerson  McMillin, 

Milo  R.  Maltbie, 

Arthur  Williams. 
The  Executive  Council  organized  without  delay  by  the  election 
of  Emerson  McMillin  as  Chairman.    By  the  kindness  of  the  Univer- 

*Mr.  Lane  retired  on  account  of  his  official  duties  before  the  drafting  of  the  bill  began. 

I 


W13933 


sity  of  Minnesota,  it  was  able  to  secure  the  services  of  Professor  John 
H.  Gray  as  Director.  Mr.  William  D.  Kerr  was  associated  with 
Professor  Gray  as  Assistant  Director.  The  first  work  of  the  Executive 
Council,  as  so  organized,  was  to  collect  all  the  legislation  both  by  the 
United  States  and  in  all  of  the  States  of  the  Union  on  the  subject  of 
the  regulation  of  public  utilities.  This  information,  which  of  itself 
is  of  the  greatest  possible  value  to  all  who  are  interested  in  this  sub- 
ject, is  contained  in  a  volume  published  by  the  Executive  Council 
entitled  "Commission  Regulation  of  Public  Utilities."  * 

With  this  information  at  hand,  the  securing  and  preparation  of 
which  required  almost  a  year,  the  Executive  Council  began  the  prep- 
aration of  a  draft  bill  which  should  embody,  as  far  as  possible,  the 
best  features  of  all  the  legislation  already  existing  upon  the  subject, 
together  with  such  additional  features  as  the  experience  of  the 
members  of  the  Executive  Council  might  suggest.  They  went  further, 
and  endeavored  to,  secure  suggestions  from  all  who  would  co-operate. 
The  result  is  the  attached  draft  bill  for  the  Regulation  of  Public 
Utilities,  containing  more  than  300  sections.  Of  these  sections  as 
drafted  only  sixty  have  been  criticised  by  anybody;  although  the  bill 
has  been  submitted  to  very  wide  criticism  on  the  part  of  members 
of  commissions  engaged  in  the  actual  regulation  of  public  utilities, 
of  men  engaged  in  the  formation  and  operation  of  public  utilities, 
and  of  students  of  the  subject  of  many  shades  of  opinion.  It  is  evi- 
dent, therefore,  that  the  draft  bill  as  a  whole  embodies  a  form  of 
legislation  which  meets  with  wide  approval,  except  as  to  such  sections 
as  deal  with  matters  upon  which  differences  of  opinion  are  inevitable. 

These  matters,  though  few  in  number,  are  of  great  importance; 
and  it  became  apparent  as  the  preparation  of  the  draft  bill  proceeded 
that  it  would  be  impossible  to  secure  a  unanimous  approval  by  the 
Department  of  this  draft  bill,  or  of  any  other  dealing  with  this  sub- 
ject. The  draft  bill,  therefore,  is  published  upon  the  authority  of 
the  Executive  Council  of  the  Department  whose  names  have  already 
been  given,  subject  to  the  reservations  submitted  in  the  memoran- 
dum of  dissent.  As  stated  in  the  dissenting  report  of  Messrs.  E.  M. 
Bassett,  John  H.  Gray,  and  Milo  R.  Maltbie,  "a  bill  of  this  sort  is 
necessarily  a  compromise  measure  and  therefore  does  not  represent 
exactly  the  view  of  any  one  member  of  the  Council."  All  of  the 
members  of  the  Council  believe  that  the  draft  bill  is  an  advance, 
in  many  respects,  on  existing  legislation.  The  dissenting  report 
which  is  attached  to  the  draft  bill  discusses  from  the  point  of  view 
of  the  dissenters  three  questions  of  large  significance. 

The  draft  bill,  with  the  dissenting  report,  was  laid  before  the 

♦This  volume  can  be  had  by  application  to  The  National  Civic  Federation.     Its  price  is  $8.50. 

2 


Executive  Council  of  The  National  Civic  Federation  at  a  special 
meeting  called  for  the  purpose  in  January,  1914,  without  having 
been  submitted,  for  the  reason  given,  to  the  Department  as  a  whole. 
At  this  meeting  the  undersigned  were  appointed  a  special  committee 
to  recommend  what  action  shotild  be  taken  by  The  National  Civic 
Federation,  in  view  of  this  circumstance.  The  special  committee 
recommends  that  the  names  of  those  comprising  the  Department 
on  the  Regulation  of  Public  Utilities,  as  originally  created  by  The 
National  Civic  Federation,  be  omitted  from  this  document,  as  it 
is  evidently  unfair  to  hold  the  members  of  a  department  in  any  way 
responsible  for  a  measure  upon  which  they  have  not  had  an  adequate 
opportunity  to  pass;  and  that  the  draft  bill  as  agreed  upon  by  the 
Executive  Covmcil  of  the  Department  be  printed  as  reported,  together 
with  the  report  and  the  memorandum  of  dissent  which  were  at- 
tached thereto. 

The  differences  in  regard  to  the  bill  reflect  the  difference  in  the 
points  of  view  of  those  who  make  them.  The  radicals  are  inclined 
to  press  regulation  to  the  limit  even  if  it  makes  it  impossible  to  secure 
private  capital  for  the  construction  and  conduct  of  public  utilities. 
In  the  minds  of  many  of  them  public  ownership  and  operation  loom 
up  as  not  objectionable  alternatives.  Those  who  have  to  do  with 
the  procuring  of  private  capital  for  public  utilities  believe  that  too 
much  regulation  wiU  easily  make  private  capital  unavailable.  These, 
therefore,  lean  towards  limiting  regulation  as  much  as  possible. 
In  this  conservative  element  there  are  again  great  differences  of 
opinion.  Some  believe  in  public  regulation  and  wish  to  make  it 
practicable  and  successful.  Others  accept  it  reluctantly  and  are 
fearful  of  any  limitation  which  may  interfere  with  established 
practices. 

The  National  Civic  Federation  cannot  pretend  to  pass  judgment 
on  the  issues  thus  raised,  though  it  is  probable  that  the  wise  coiu"se 
to  be  followed  lies  between  the  two  extremes.  The  undersigned  con- 
ceive, therefore,  that  the  function  of  The  National  Civic  Federation 
is  to  make  this  contribution  to  the  subject  of  the  regulation  of 
public  utilities  as  useful  as  possible  by  throwing  light  upon  it  from 
many  points  of  view.  They,  therefore,  subjoin  a  memorandirai, 
for  which  they  do  not  ask  The  National  Civic  Federation  to  become 
responsible,  on  some  of  the  large  questions  involved.  Several  appen- 
dices, having  the  same  object  in  view,  are  attached  to  the  draft  bill. 

Appendix  A  is  a  report  prepared  at  our  request  by  Mr.  William  D. 
Kerr.  This  report  states  the  most  important  suggestions  received 
in  connection  with  the  disputed  sections  of  the  draft  bill,  and  gives 
as  impartially  as  possible  the  arguments  pro  and  con. 

3 


Appendix  B  is  a  list  of  the  railroad  and  public  service  commissions 
already  established  in  the  United  States. 

Appendix  C  is  the  report  to  The  National  Civic  Federation  on 
Public  Ownership  and  Operation,  made  in  1907. 

MEMO-RANDUM    BY    THE    UNDERSIGNED. 

When  a  legislature  is  clear  as  to  the  policy  which  it  wishes  to 
embody  in  any  new  legislation  upon  this  subject,  the  sections  of 
the  draft  bill  which  deal  with  such  questions  of  policy  can  be  readily 
adapted  by  a  competent  draftsman  to  conform  to  its  wish.  The 
purpose  of  this  discussion  is  to  state  as  concisely  as  possible  some  of 
the  differing  policies  that  are  favored,  and  the  consequences  likely 
to  follow  from  the  adoption  of  one  or  the  other. 

Public  regulation  necessarily  means  restriction  on  the  freedom  of 
private  action;  but,  if  public  regulation  of  privately-owned  and 
operated  public  utilities  is  to  remain  a  practicable  policy,  it  must  not 
be  carried  so  far  as  to  result  in  the  strangulation  of  private  enterprise. 
The  problem  to  be  worked  out,  therefore,  in  connection  with  the  public 
regulation  of  such  utilities  is,  to  give  power  enough  to  the  regulating 
commission  to  enable  it  to  prevent  the  abuses  to  which  uncontrolled 
private  management  has  been  shown  to  be  subject,  without  making 
exactions  so  severe  as  to  make  it  impossible  to  secure  the  private 
capital  that  is  necessary  to  maintain  existing  facilities  in  a  high  state 
of  efficiency,  and  to  develop  new  enterprises  when  such  are  necessary. 
Such  excessive  restrictions  may  be  embodied  in  the  law  itself;  or, 
they  may  flow  from  the  bad  judgment  of  the  commission  charged 
with  the  administration  of  the  law.  For  the  purposes  of  this  discussion 
the  law  itself  is  the  subject  of  study;  but  it  is  desirable  to  point  out, 
at  this  place,  that  the  character  of  the  men  to  whom  the  administra- 
tion of  such  laws  is  submitted  is  of  vital  consequence.  If  any  such 
law  is  to  work  well,  the  men  administering  it  must  be  men  of  high 
character  and  of  good  judgment.  Without  high  character,  such  men 
may  fall  an  easy  prey  to  the  lamentable  corruption  of  those  who  are 
willing  to  buy  privilege  even  at  the  price  of  debauching  the  public 
service.  Without  good  judgment,  the  interests  of  the  public  and  of 
the  public  service  corporations  are  certain  to  suffer.  With  men  of 
high  character  and  of  good  judgment,  experience  is  likely  to  make 
such  a  body  increasingly  serviceable  to  all  the  interests  concerned. 

It  is  admitted  that  any  such  public  service  commission,  by  what- 
ever name  it  may  be  called,  must  have  large  discretionary  powers;  and 
it  is  probably  better  to  make  this  discretion  large,  despite  the  possibili- 
ties of  abuse,  than  by  making  the  law  too  rigid  to  make  it  impossible 
for  the  commission  to  deal  equitably  with  exceptional  conditions. 

4 


The  first  question  of  importance  that  emerges  is,  as  to  the  determin- 
ation of  values  against  which  stock  or  bonds  are  to  be  issued ;  whether 
this  determination  shall  be  made  by  the  representatives  of  the  public 
or  by  those  who  furnish  the  money.  The  draft  bill  leaves  this  deter- 
mination to  the  representatives  of  the  public,  upon  the  theory  that  if 
regulation  means  anything  it  means  this ;  so  that  both  investors  and 
the  public  who  are  to  be  served  by  the  utility  may  be  protected  against 
fraudulent  practices  and  exaggerated  values.  This  being  granted,  it 
remains  to  be  decided  whether  there  shall  be  an  appeal  to  the  courts 
from  decisions  of  the  commission  on  questions  of  value.  The  draft 
bill  is  drawn,  consistently,  upon  the  theory  that  the  only  appeal  to  the 
courts  from  the  action  of  the  commission  shall  be  on  questions  of  law, 
and  that  there  shall  be  no  appeal  as  to  its  findings  upon  questions  of 
fact,  such  as  value.  Some  of  those  who  are  engaged  in  establishing 
new  public  utilities  hold  the  view  that  upon  questions  of  value,  if 
upon  no  other  question  of  fact,  there  should  be  an  appeal  to  the  courts. 

This  question  develops  into  another  phase  which  ought  to  be  stated. 
If  the  public  assumes  responsibility  for  the  values  against  which  stocks 
and  bonds  may  be  issued,  it  is  held  by' some  that  the  public  becomes 
morally  responsible  for  the  existence  of  such  values.  There  is  also  at 
least  the  possibility  that,  in  time,  the  public  will  be  asked  to  guarantee 
the  values  which  it  stands  sponsor  for.  Should  the  time  come  when 
the  public  is  willing  to  do  this,  it  can  undoubtedly  secure  private  funds 
for  such  enterprises  at  much  lower  rates  of  interest  than  can  be  had 
at  the  present  time ;  for  private  money  for  such  enterprises  can  be  had 
only  at  a  price  commensurate  with  the  risk.  If  the  risk  is  large,  private 
capital  will  require  large  returns  because  of  the  risk.  If  the  risk  is 
small,  private  capital  can  be  had  cheaply  because  of  the  absence  of 
risk.  On  the  other  hand,  because  the  fixing  of  values  by  the  public 
perhaps  tends  in  this  direction,  there  are  those  who  maintain  that 
public  regulation  should  not  attempt  to  determine  values  but  should 
call  for  the  most  complete  publicity.  Under  such  a  system,  private 
investors  would  be  given  the  fullest  possible  information,  and  would 
then  be  expected  to  look  out  for  themselves.  If  the  private  investor 
were  the  only  party  to  be  considered,  such  a  system  might  be  satis- 
factory. There  would  be  nothing,  however,  in  such  a  case,  to  protect 
the  public  against  unreasonable  financial  burdens  as  these  affect  good 
service,  except  the  arbitrary  discretion  of  the  public  service  commis- 
sion in  fixing  rates.  It  would  appear  to  be  more  difficult  to  exercise 
arbitrary  discretion  in  such  a  matter,  fairly,  than  to  determine  with 
justice  actual  values  against  which  stocks  and  bonds  may  be  issued. 

Section  210  of  the  draft  bill  deals  with  the  question  of  the  joint 
use  of  facilities  by  possibly  competing  public  utilities.     So  far  as 

5 


P 


•^ 


railroad  service  is  concerned,  the  public  policy  in  New  York  State 
is  well  established,  that,  for  the  distance  of  a  thousand  feet,  joint 
use  of  rails  must  be  permitted  upon  equitable  terms.  So  far  as 
gas  is  concerned,  joint  use  would  appear  to  be  impossible;  but,  as 
regards  telephonic  service  and  electric  lighting,  joint  use  is  often 
practicable  and  may  be  greatly  in  the  public  interest.  It  is  worth 
while  to  point  out  that  the  American  Telephone  and  Telegraph 
Company,  in  its  recent  arrangement  with  the  Government,  has 
given  its  consent  to  joint  use  of  its  facilities  upon  terms  satisfactory 
to  the  Government.  It  has  been  suggested  that  joint  use  should 
not  be  permissible  as  between  competing  companies.  The  draft 
bill  recognizes  the  propriety  of  the  joint  use  of  public  facilities  under 
certain  conditions,  even  as  between  competing  companies.  It  is 
certainly  in  the  public  interest  that  poles  and  wires  in  the  streets  of 
a  city  or  town  should  not  be  duplicated  unnecessarily.  The  draft 
bill  gives  to  the  commission  ample  authority  to  prevent  competition 
in  public  utilities,  where  competition  is  not  in  the  public  interest. 
It  may  also  be  suggested  that,  where, joint  use  of  any  facility  is 
permitted,  whether  as  between  competitors  or  non-competitors,  the 
management  of  the  facility  thus  jointly  used  should  always  be  left 
in  full  control  of  the  corporation  owning  it. 

Sections  235-9  of  the  draft  bill  deal  with  the  question  of  depre- 
ciation, upon  the  assumption  that  this  term  is  broad  enough  to  in- 
clude obsolescence  and  replacement.  Probably  depreciation,  as  a  legal 
term,  does  include  obsolescence  and  replacement;  but  the  question 
of  obsolescence,  especially  in  telephoning,  is  so  important  that  the 
thing  might  well  be  emphasized  in  the  law  by  the  use  of  this  word 
as  well  as  of  "depreciation."  In  telegraphing,  "depreciation"  would 
usually  provide  adequately  for  replacement;  but,  in  telephoning,  the 
principal  cost  is  not  in  the  lines  and  poles  but  in  the  service  stations. 
For  the  best  service,  apparatus  that  is  comparatively  new  must 
often  be  discarded  before  it  is  worn  out  in  order  to  give  place  to 
the  last  improvement.  The  same  thing  is  true  in  the  power  houses 
of  electric  railways;  and  probably,  in  a  greater  or  less  degree,  in 
connection  with  every  public  utility  that  depends  upon  so  new  a 
science  as  electricity.  It  is  very  dilEhcult  to  lay  down  a  general 
rule  applying  to  all  manner  of  cases  which  will  not  provide  either 
too  small  or  too  large  a  fund  for  depreciation  and  obsolescence. 
Too  small  a  fund  may  expose  both  the  public  and  the  operating 
company  to  hardship,  and  too  large  a  fund  may  equally  have  the 
same  effect.  Probably  there  is  no  way  to  deal  with  this  question 
in  a  law  except  to  give  wide  discretion  to  the  commission  repre- 
senting the  public.     A  Depreciation  Fund  Board  may  sometimes  be 

6 


created,  with  authority  to  increase  or  decrease,  according  to  cir- 
cumstances, the  ordinary  and  normal  fund  set  aside  for  these  pur- 
poses. The  effect  of  uimecessaril\^  heavy  charges  for  depreciation 
and  obsolescence,  or  of  insufficient  allowance  therefor,  is  so  serious 
that  this  provision  of  a  permanent  board  to  adjust  the  matter  from 
year  to  year,  in  the  light  of  actual  circumstances,  appears  to  offer  a 
wise  solution  of  this  verj?^  difficult  problem.  Such  a  board  would 
enable  a  commission  to  deal  in  the  Hght  of  circumstances  with  the 
question  of  depreciation  as  applied  to  a  new  company  or  to  a  com- 
pany in  difficulties. 

One  of  the  questions  discussed  in  the  dissenting  report  is  that 
of  State  vs.  Local  franchises,  dealt  with  in  the  draft  bill  in  Sections 
277  to  299.  The  view  of  the  majority  of  the  Executive  Council  is 
sufficiently  expressed  in  the  provisions  of  the  act,  and  the  dissent- 
ing opinion  is  dearly  set  forth  in  the  dissenting  report.  Two  points 
remain  to  be  emphasized  in  the  interest  of  dear  thinking  upon  this 
subject.  It  is  hardly  conceivable  that  any  locality  wiU  wiUingh^ 
abandon  its  right  to  say  whether  or  not  a  franchise  shall  be  granted 
for  the  use  of  any  of  its  streets  or  public  places;  and,  to  that  extent, 
the  co-operation  of  the  locality  with  the  state  commission  is  prob- 
ably essential.  But,  if  it  be  suggested  that  for  this  reason  the 
regulation  of  local  franchises  should  be  entirely  local,  other  considera- 
tions come  into  play.  In  the  first  place,  many  public  utilities  serve 
more  than  one  locaHty,  and  it  is  dear  that  for  piublic  utilities  of  such 
a  character  there  must  be  state  r^ulation.  In  the  next  place,  a 
state  commission  will  necessarily  have  a  wider  experience  than  any 
purely  local  commission  can  acquire  except  in  the  ven'^  largest  dties, 
and  ordinarily  it  can  command  a  higher  grade  of  expert  sendee  for 
its  guidance;  but,  be^'ond  all  that,  it  would  seem  to  be  dear  that, 
so  far  as  the  fixing  of  rates  is  concerned,  this  must  be  done  by  a 
state  commission  even  for  a  locality,  if  pubUc  regulation  is  to  appeal 
to  the  sense  of  fairness  of  the  average  man.  To  submit  questions 
of  rates  to  a  local  commission  is  practically  to  permit  the  users  of 
a  serxnce  to  say  what  should  be  paid  for  it. 

In  the  matter  of  exchanging  existing  franchises  running  for  a 
fixed  term,  for  indeterminate  franchises,  this  may  be  said.  Speak- 
ing broadly,  the  indeterminate  franchise  is  the  best  form  of  franchise, 
in  the  interest  of  the  public  as  well  as  of  the  public  service  corporation, 
which  has  yet  been  developed.  Ever\''  reasonable  encouragement 
should  be  given  for  the  exchange  of  franchises  running  for  a  fixed 
term  into  indeterminate  franchises.  It  would  appear  to  be  fair  to 
permit  the  locality  which  has  assented  to  the  fixed  term,  to  pass 
upon  the  terms  of  the  exchange.     Any  attempt  to  do  this  by  general 

7 


law  without  the  consent  of  the  locality  would  be  likely  to  evoke 
popular  resentment  because  of  its  unfairness,  precisely  as  the  sug- 
gestion that  the  users  of  a  public  service  should  fix  the  rate  to  be 
paid  for  the  same  would  be  likely  to  antagonize  the  investor.  By 
the  draft  bill,  where  a  new  locality  is  to  be  served  the  locality  must 
give  its  consent,  which  in  its  nature  will  be  indeterminate,  and  in 
doing  so  the  locality  can  attach  conditions  not  inconsistent  with  the 
provisions  of  the  bill  itself.  Whether  the  draft  bill  sufficiently  pro- 
tects the  rights  of  the  locality,  in  these  respects,  is  precisely  one  of 
the  questions  upon  which  legislators  must  pass.  It  is  certainly 
within  the  province  of  the  state  to  declare  that  franchises  for  a  fixed 
term  must  give  place  at  the  expiration  of  the  term  to  indeterminate 
franchises;  and  it  ought  not  to  be  impossible  for  a  public  service 
commission,  in  any  given  case,  to  bring  about  an  agreement  as  to 
terms  between  the  locality  and  the  corporation. 

The  question  of  holding  companies,  as  discussed  in  the  dissenting 
report,  is  unquestionably  one  of  great  importance.  It  is  essential 
to  point  out,  however,  that  there  are  different  kinds  of  holding 
companies  as  to  which,  possibly,  different  attitudes  should  be  taken. 
A  local  holding  company  of  a  local  public  service  corporation  would 
seem  to  be  a  device  that  can  have  no  possible  advantage  for  the 
public.  A  holding  company,  on  the  other  hand,  which  makes  it  its 
business  to  control  the  operations  of  many  small  public  service  cor- 
porations, in  as  many  different  localities,  may  have  many  advan- 
tages for  the  public.  In  the  view  of  some  the  method  of  financing 
proposed  by  the  draft  bill,  in  Sections  109  to  116,  would  be  likely 
to  force  the  creation  of  such  holding  companies  in  order  to  provide 
adequate  funds  for  local  service.  But,  whether  this  be  so  or  not, 
it  is  clear  that  such  a  company,  under  broad-minded  management, 
may  give  better  service  to  every  locality  controlled  by  it  than  any 
small  sized  locality  coiild  command  for  itself.  Such  a  holding  com- 
pany can  command  better  expert  talent  and,  by  comparing  methods 
and  results  in  different  localities,  can  bring  the  operation  everywhere 
up  to  the  highest  standard  obtained  anywhere.  Whether  or  not  a 
local  company  shall  pass  under  the  control  of  a  holding  company, 
and  the  arrangements  to  be  made  in  such  a  case  for  the  protection 
of  minority  stockholders,  would  seem  to  be  legitimate  subjects  for 
the  discretion  of  a  public  service  commission.  It  is  not  reasonable 
that  the  public  regulation  which  applies  to  direct  control  should  not 
also  apply  to  indirect  control. 

The  question  of  the  capitalization  of  consolidated  companies  is 
dealt  with  in  the  draft  bill  in  Section  119.  It  is  believed  that  some 
standard  of  action  must  be  laid  down  by  the  law.     Such  a  rule  be- 

8 


ing  given,  this  section  leaves  large  discretion  to  the  judgment  of  the 
commission.  The  conditions  to  be  dealt  with  are  so  various  that 
such  discretion  is  evidently  necessary.  The  dissenting  report  simply 
proposes  a  different  standard  from  that  agreed  to  by  a  majority  of 
those  who  prepared  the  draft  bill. 

It  appears  worth  while  to  the  undersigned,  in  closing  this  Memo- 
randum, to  emphasize  the  fact  that  the  issue  between  public  owner- 
ship and  operation  of  public  utilities  and  private  ownership  and 
operation  of  such  utilities  under  public  regulation,  is  not  wholly, 
and  perhaps  not  primarily,  a  question  of  economics.  Grave  and  far- 
reaching  social  and  political  questions  are  inevitably  involved.  The 
public  ownership  and  operation  of  a  public  utility  here  and  there 
is  a  matter  of  comparative  unimportance;  but  the  adoption  of  such 
a  policy  by  a  large  and  populous  state  is  a  very  different  matter.  For 
example,  in  San  Francisco  a  street  railway  system  has  been  taken  over 
by  the  public  and  is  now  publicly  owned  and  operated.  By  conse- 
t[uence  it  comes  under  the  operation  of  the  state  civil  service  law.  The 
application  of  this  law  to  the  men  employed  by  the  private  com- 
pany when  taken  over  resulted  in  the  loss  of  their  places  by  many 
members  of  the  local  union  of  street  car  employes.  The  effect  upon 
the  imion  was  so  serious  that  the  American  Federation  of  Labor 
has  sent  a  commission  to  Europe  this  year  to  study  particularly 
this  aspect  of  the  question.  Without  attempting  to  anticipate 
the  report  of  this  commission,  it  seems  to  lie  upon  the  surface  that 
the  civil  service  system  and  regiilation  of  rates  of  pay  by  law  are 
inconsistent  with  the  methods  and  objects  of  collective  bargaining  by 
organized  labor.  In  this  apparently  irreconcilable  conflict,  which 
system  in  this  country  would  be  likely  to  go  by  the  board,  the  civil  ser- 
vice system  or  that  of  collective  bargaining?  If  the  civil  service  system 
were  to  be  broken  down,  the  country  would  be  in  danger  of  retiu^n- 
ing  to  the  demoralizing  doctrine  "To  the  victors  belong  the  spoils," 
with  the  spoils  multiplied  so  as  to  include  every  position  necessitated 
by  the  operation  of  the  public  utility  whatever  it  may  be.  If  it  be 
imagined  that  collective  bargaining,  including  the  right  to  strike, 
may  be  permanently  enjoyed  in  connection  with  the  public  service, 
anyone  who  thinks  this  should  recall  what  happened  in  democratic 
France  when  the  railroad  employes  of  France  went  upon  a  general 
strike.  The  men  were  ordered  to  the  colors,  and  the  strike  was 
broken. 

The  attempt  to  carry  out  the  methods  of  collective  bargaining 
and  the  right  of  striking  in  connection  with  the  service  of  the  public 
is  the  pathway  towards  placing  every  public  employment  upon  a 
military  basis,  for  the  large  public  will  not  permanently  permit  the 

9 


public  servants  either  to  coerce  its  judgment  or  to  deprive  it  of  pub- 
lic services  which  are  essential  to  its  well  being.  These  are  some 
of  the  social  questions  that  are  involved  in  the  general  acceptance 
of  public  ownership  and  operation  as  distinguished  from  private 
ownership  and  operation. 

The  political  consequences  of  the  acceptance  of  public  ownership 
and  operation  on  a  large  scale  are  certain  to  be  not  less  vital.  It 
was  said  by  someone  at  the  time  of  the  Hayes-Tilden  controversy 
in  connection  with  the  presidency,  that,  if  the  political  patronage 
had  been  twice  as  large  as  it  then  happened  to  be,  it  would  have 
been  impossible  to  have  escaped  civil  war.  The  public  ownership 
and  operation  of  public  utilities  of  all  kinds,  if  steam  railroads  are 
included,  would  add  literally  millions  of  men  and  women  to  the 
public  pay-roll.  If  such  a  policy  is  adopted,  it  should  be  adopted  de- 
liberately, and  the  object  of  this  memorandum  is  to  point  out  that  such 
questions  as  these  far  outweigh,  in  public  importance,  the  financial 
questions  that  are  involved  as  between  public  ownership  and  oper- 
ation and  private  ownership  and  operation  under  public  regulation. 
Public  regulation  of  privately  owned  and  operated  public  utilities, 
if  such  regulation  is  successful,  ought  to  obviate  the  principal  abuses 
which  have  developed  in  the  past  from  the  uncontrolled  private 
ownership  and  operation  of  public  utilities.  If  public  ownership 
and  operation  on  a  vast  scale  is  undertaken,  what  is  to  be  the  safe- 
guard against  the  social  and  political  dangers  which  have  been 
pointed  out,  if  these  prove  to  be  in  fact  as  great  as  they  appear  to 
be? 

Seth  Low, 
Wm.  R.  Willcox. 
New  York,  October  23,  1914. 


10 


REPORT  OF  THE  DEPARTMENT  ON  REGU- 
LATION OF  INTERSTATE  AND  MUNICIPAL 
UTILITIES,  OF  THE  NATIONAL  CIVIC 
FEDERATION. 

To  The  National  Civic  Federation: 

The  Department  on  Regulation  of  Interstate  and  Municipal 
Utilities  submits  to  The  National  Civic  Federation  the  following 
report : 

ORIGIN  OF  THE  DEPARTMENT. 

One  of  the  conclusions  reached  by  the  investigation  carried  on 
some  years  ago  by  The  National  Civic  Federation  on  public  and  private 
ownership  of  public  utilities  was  that  these  utilities  tend  to  become 
and  ought  to  be  monopolies  and  that  unregulated  monopoly  in  so  im- 
portant a  field  is  impossible.  The  conclusion,  therefore,  was  that  the 
only  alternative  is  public  ownership  and  operation  or  effective  regu- 
lation. From  this  it  appeared  to  The  National  Civic  Federation  that 
the  time  was  ripe  for  taking  a  complete  accoimt  of  stock  to  find  out 
what  had  actually  been  accomplished  in  the  way  of  regulation  and 
what  hope  of  making  regulation  effective  in  the  public  judgment  the 
immediate  future  holds  out. 

With  this  end  in  view  The  National  Civic  Federation  called  a 
large  conference  of  people  interested  in  this  subject  to  be  held  in 
New  York  on  June  23,  191 1.  The  conference  after  long  discussion, 
believing  that  regulated  private  ownership,  if  regulation  can  be  made 
effective,  is  more  consonant  with  American  traditions  than  public 
ownership,  recommended  to  the  Federation  that  such  an  investiga- 
tion be  undertaken.  It  was  believed  that,  whatever  the  ultimate  form 
of  ownership  in  the  remote  future  may  be,  the  American  public  is 
thoroughly  committed  to  the  experiment  of  regulated  private  owner- 
ship and  that  such  regulation  would  be  the  best  possible  preparation 
for  public  ownership  in  case  such  ownership  should  later  be  adopted. 
It  was  clear  to  the  members  of  the  conference  that  the  public  had  had 
much  more  experience  in  the  field  of  regulation  than  in  public  owner- 
ship. It  thereupon  appointed  a  committee  to  report  a  plan  and  scope 
for  such  an  investigation  and  took  recess  until  June  30,  in  order  that 
the  committee  might  report. 

The  Committee  recommended  the  creation  of  a  separate  de- 
partment on  interstate  and  municipal  utilities  to  make  a  thorough  in- 


vestigation  of  the  subject  at  home  and  abroad  and  to  embody  the  re- 
sults of  such  investigation  in  a  formal  report  to  be  accompanied  by 
the  form  of  a  definite  bill  embodying  what  in  the  light  of  the  inves- 
tigation has  proved  best  in  the  various  attempts  at  regulation  by 
the  federal  government  and  in  the  states  or  the  municipalities.  At 
the  adjourned  meeting  in  accordance  with  the  recommendation  such 
a  department  was  created  with  a  membership  representing  all  phases 
of  interest  and  view. 

The  department  membership  being  considered  too  large  for  a 
working  or  directing  body,  an  Executive  Council  was  appointed 
to  have  immediate  charge  and  direction  of  the  work.  Disregarding 
some   early   changes   the   Council   was  made  up  of  the  following: 

Emerson  McMillin,  American  Light  &  Traction  Co.,  New 
York,  Chairman. 

Franklin  Q.  Brown,  Redmond  &  Co.,  New  York,  Vice  Chair- 
man, and  Chairman  Ways  and  Means  Committee. 

John  H.  Gray,  Head  of  Department  of  Economics  and  Politi- 
cal Science  in  the  University  of  Minnesota,  Secretary, 
Chairman  Committee  on  Form. 

Edward  M.  Bassett,  Attorney  and  Former  Member  New 
York  Public  Service  Commission,  First  District,  Chair- 
man Committee  on  Accounts  and  Reports. 

Halford  Erickson,  Member  Railroad  Commission  of  Wis- 
consin, Chairman  Committee  on  Rates. 

William  D.  Kerr,  Attorney,  Chicago,  Chairman  Committee 
on  Service. 

Blewett  Lee,  General  Solicitor  of  Illinois  Central  Railroad 
Co.,  Chicago,  Chairman  Committee  on  Franchises. 

Milo  R.  Maltbie,  Member  New  York  Public  Service  Com- 
mission, First  District,  Chairman  Committee  on  Cap- 
italization. 

Arthur  Williams,  Chairman,  Association  of  Edison  Electric 
Companies  and  President  of  American  Museum  of  Safety, 
Chairman  Committee  on  Safety  of  Operation. 

Franklin  K.  Lane,  Former  Member  Interstate  Commerce 
Commission . 

Mr.  John  H.  Gray,  of  Minneapolis,  was  appointed  Director  of  In- 
vestigation and  secretary  of  the  council  and  Mr.  William  D.  Kerr,  of 
Chicago,  Assistant  Director  of  Investigation.  Mr.  Bruce  Winnan,  of 
the  Harvard  Law  School,  was  appointed  Counsel  in  Investigation. 
Mr.  F.  C.  Walcott  became  Treasurer  of  the  Ways  and  Means  com- 

12 


mittee  and  Mr.  E.  A.  Quarles  of  The  National  Civic  Federation, 

Assistant  Treasurer.     The  council  appointed  the  following  sub-com- 
mittees to  have  charge  of  the  various  subject  divisions  of  the  work: 

ACCOUNTS  AND  REPORTS     .   E.  M.  Bassett,  Chairman. 


CAPITALIZATION 
FORM         .... 
FRANCHISES  . 
RATES       .... 
SAFETY  OF  OPERATION 
SERVICE  .... 
WAYS  AND  MEANS   . 


M.  R.  Maltbie,  Chairman. 
J.  H.  Gray,  Chairman. 
Blewett  Lee,  Chairman. 
Halford  Erickson,  Chairman. 
Arthur  Williams,  Chairman. 
William  D.  Kerr,  Chairman. 
F.  Q.  Brown,  Chairman. 


Work  Done  and  Results  Accoirfplished, 

The  Department  took  quarters  in  the  Metropolitan  Building, 
New  York,  and  entered  upon  the  systematic  work  of  the  investiga- 
tion February  i,  191 2.  The  Counsel  in  Investigation  was  directed 
to  make  a  complete  collection  and  compilation  of  aU  of  the  statutes, 
federal  and  state,  relating  to  this  subject  according  to  a  detailed  out- 
line previously  drawn  by  the  Assistant  Director,  Mr.  Kerr.  The 
field  was  divided  according  to  this  outline  into  sixteen  main  heads,  as 
follows: 

Basis  of  Rate  Making 

Establishment  and  Change  of  Rates 

Publicity  of  Rates 

Discrimination  in  Rates  and  Service 

Service 

Accotmts 

Reports  of  Utilities  and  Commissions 

Regulation  of  Stock  and  Bond  Issues 

Intercorporate  Relations 

Franchises 

Safety  of  Operation 

Organization  of  Commission 

Jurisdiction  and  Definition 

General  Powers  of  Commission 

Commission  Procedure 

Enforcement. 

Very  early  in  the  work  a  staff  of  five  investigators — namely, 
Messrs.  R.  D.  Fleming,  I.  E.  Margulies,  H.  Salpeter,  I.  L.  Sharfman 
and  Charles  F.  Yauch — ^was  organized  at  the  main  office  of  the  de- 

1.3 


partment  under  the  immediate  direction  of  the  Assistant  Director,  Mr. 
Kerr,  to  make  further  detailed  analyses  of  the  statutory  material. 
This  work  was  carried  on  continuously  up  to  February  15,  191 3,  and 
separate  pamphlets,  one  for  each  of  these  divisions  of  the  statutory 
material,  were  printed  as  soon  as  ready  and  widely  distributed  to 
every  public  commissioner  and  to  other  interested  parties  with  requests 
for  criticisms  and  suggestions.  The  several  parts  have  been  brought 
together  in  a  single  volume  and  have  been  published  with  scope  notes, 
cross  references  and  indices  in  a  volume  entitled  "  Commission  Re- 
gulation of  Public  Utilities." 

Mr.  R.  H.  Whitten  of  the  Public  Service  Commission,  New  York, 
First  District,  was  engaged  as  an  expert  to  report  on  the  relation  of 
public  utility  industries  to  the  public  authorities  in  Great  Britain. 
He  was  especially  directed  to  examine  the  regulation  of  capitalization 
and  of  profits  and  to  report  on  the  sliding  scale  of  charges  for  gas  and 
payment  of  dividends  by  gas  companies.  He  also  reported  on  the 
sliding  scale  for  gas  in  Boston,  Massachusetts,  and  on  the  regulation 
of  the  gas  industry  at  Toronto  by  the  province  of  Ontario. 

Mr.  Delos  F.  Wilcox  of  the  Public  Service  Commission,  New 
York,  First  District,  was  sent  to  the  Pacific  coast  as  an  expert  to 
report  on  regulation  in  that  region.  He  made  a  report  on  the  origin, 
jurisdiction,  powers  and  working  of  the  California  railroad  com- 
mission, and  gave  a  historical  sketch  of  local  regulation  in  the  twenty- 
seven  municipalities  having  charters  under  the  home  rule  clause  of 
the  California  constitution.  To  this  he  added  a  more  detailed  history 
of  local  regulation  in  the  two  chief  cities  of  California,  San  Francisco 
and  Los  Angeles.  This  was  supplemented  by  reports  on  regulation 
in  the  states  of  Oregon  and  Washington  and  a  chapter  was  added  on  the 
street  car  and  gas  franchises  in  Minneapolis,  Minnesota.  These  re- 
ports were  printed  for  the  use  of  the  investigators,  members  of  the 
Council  and  the  various  committees. 

Following  a  topical  outline  prepared  by  the  Director  of  In- 
vestigation, Mr.  Wyman,  the  counsel  to  the  department,  had  ex- 
tracts made  from  the  decisions  of  all  the  state  commissions  and  Mr. 
R.  L.  Hale  of  New  York  was  engaged  to  write  a  summary  or  resume 
of  these  decisions  to  bring  out  for  the  use  of  the  committees  and  the 
Council  the  general  tendencies  in  commission  decisions.  Mr. 
Wyman  also  made  a  thorough  search  of  the  current  decisions  and 
furnished  citations  from  all  court  decisions  interpreting  the  various 
commission  acts. 

In  addition  to  the  field  work  done  by  Messrs.  Wilcox  and  Whit- 
en, the  Director  and  the  Assistant  Director  made  personal  visits  to 

14 


many  of  the  more  important  commissions,  east  and  west,  to  confer 
with  the  commissioners,  operators  and  attorneys  and  other  interested 
and  well  informed  persons  in  those  localities  and  to  study  the  organ- 
ization and  operation  of  the  various  commissions. 

A  thorough  study  of  the  court  decisions  as  well  as  of  general 
literature  in  the  field  of  public  utilities  was  made. 

On  the  basis  of  all  this  work  and  investigation,  tentative  sections 
for  a  sample  public  utility  bill  were  drawn  and  sent  to  all  com- 
missioners in  the  United  States  and  other  selected  and  interested 
parties  for  consideration  and  criticism.  It  is  believed  that  the  ex- 
tended criticisms  and  suggestions  offered  by  our  committees  and  a  very 
large  number  of  interested  parties  have  furnished  a  solid  basis  for  a 
model  bill.  The  generous  and  widespread  response  to  our  request 
for  criticisms  and  general  aid  has  been  very  gratifying  and 
extremely  helpful.  Many  parties  spent  weeks  and  months  studying 
these  tentative  sections  and  giving  us  the  benefit  of  their  investi- 
gations. Every  written  criticism  received  at  the  office  was  mani- 
folded and  sent  out  to  the  members  of  the  sub-committees  for 
consideration.  These  committees  have  held  many  meetings  and  dis- 
cussed the  proposed  sections  and  all  of  the  criticisms  relating  thereto 
and  then  reported  their  conclusions  to  the  Executive  Council.  The 
Covmcil  has  held  many  prolonged  sessions  and  considered  the  sections, 
the  reports  of  the  sub-committees,  and  oral  and  written  criticisms 
and  suggestions  from  individuals  and  representatives  of  associations, 
going  over  every  section  line  by  line  and  amending  it  as  the  circum- 
stances seemed  to  require.  After  each  revision  by  the  council  the 
sections  have  been  reprinted. 

Wherever  written  criticisms  seemed  of  sufficient  extent  and  im- 
portance the  Director  or  the  Assistant  Director  has  attempted  an  oral 
conference  with  the  interested  parties  to  go  over  such  criticisms  in 
detail. 

It  may  therefore  be  said  that  the  bill,  thus  prepared  and 
approved  by  the  Executive  Council  of  the  Department  and  now 
offered  for  approval  by  The  National  Civic  Federation,  is  the  first 
bill  since  the  earliest  days  of  regulation  that  has  ever  been  drawn 
with  a  ftdl  knowledge  of  all  existing  legislation  in  the  field  and  after 
a  careful  survey  and  study  of  all  of  the  more  important  court  decisions 
and  the  general  literature,  and  after  taking  into  confidence  and  con- 
ference all  of  the  members  of  all  existing  commissions  in  the  coimtry. 
The  bill  is  the  result  of  a  wider  conference  and  discussion  with  more 
people  of  more  varied  interests  and  views  than  any  other  bill  ever 
offered  in  any  jiirisdiction  in  the  United  States.  After  such  prolonged 
study  and  discussion  we  have  attempted  to  embody  all  that  is  best 

IS 


in  existing  legislation  at  home  and  abroad  and  to  eliminate  every 
feature  that  in  practice  has  proved  disadvantageous.  Certainly  no 
other  bill  in  this  field  and  no  existing  statute  has  ever  had  the  variety 
or  extent  of  effort  put  into  it  that  has  been  given  to  this  bill.  We, 
therefore,  offer  the  bill  for  your  approval  and  for  submission  to  the 
various  states  in  the  hope  and  the  belief  that,  so  far  as  it  may  be 
adopted,  it  will  lead  to  a  better  understanding  between  these  vitally 
necessary  industries  and  the  public  that  they  serve  than  has  here- 
tofore been  possible  under  less  carefully  drawn  legislation,  and  that 
such  regulation  will  be  alike  just  and  fair  to  the  investor,  the  owner 
and  the  users  of  this  service. 

The  work  done,  the  result  of  which  is  now  submitted,  has  cost  a 
large  sum  of  money,  all  of  which  was  raised  by  voluntary  contribu- 
tions, and  for  which  most  sincere  thanks  are  tendered. 

It  is  with  a  sense  of  profound  gratification  that  the  Council  is 
enabled  to  report  substantial  concurrence  on  the  part  of  its  mem- 
bers in  the  bill  as  a  whole,  the  dissent  to  the  bill  as  an  entirety 
of  Mr.  Maltbie  being  recorded.*  As  is  customary  in  an  undertak- 
ing where  individual  views  must  to  some  extent  yield  to  a  majority 
each  member  has  reserved  the  right  to  express  dissent  on  special 
points. 

By  order  of  the  Executive  Council, 

EMERSON  McMILLIN, 

Chairman. 

New  York,  December  ii,  1913. 


*  After  the  filing  of    the  report   Messrs.   John  H.  Gray  and  E.  M.  Bassett  joined  with  Mr. 
Maltbie  in  his  dissent  to  certain  provisions  of  the  bill.     Their  dissenting  report  follows. 


16 


DISSENTING  REPORT  OF 

E.  M.  BASSETT,  JOHN  H.  GRAY,  AND 

MILO  R.  MALTBIE. 

A  bill  of  this  sort  is  necessarily  a  compromise  measure  and,  there- 
fore, does  not  represent  exactly  the  view  of  any  one  member  of  the 
council.  While  the  undersigned  believe  that  the  bill  is  an  advance 
in  many  respects  on  existing  legislation,  there  are  certain  points  on 
which  it  falls  so  far  short  of  providing  for  effective  regulation,  that 
we  feel  compelled  to  dissent  upon  certain  important  points.  The 
minor  points  of  difference  need  not  be  mentioned. 

I. 

HOLDING  COMPANIES. 

The  bill  contains  no  provisions,  such  as  may  be  found  in  all  the 
more  recent  and  piogressive  statutes  of  the  various  states,  giving 
commissions  jurisdiction  over  holding  companies.  Under  the  pro- 
posed model  law,  a  company  may  not  sell,  transfer,  mortgage  or 
lease  its  franchise  to  another  company,  companies  may  not  merge 
or  consolidate,  a  company  may  not  lease  its  plant  or  property  to 
another  company,  without  the  permission  of  the  supervisory  board. 
Competing  companies  may  not  be  eliminated  and  one  company  may 
not  obtain  control  of  another  by  any  of  these  means  without  state 
approval.  But  the  more  .subterranean  and  indirect  method  of  buy- 
ing up  fifty-one  per  cent,  or  more  of  the  stock  of  a  public  utility  may 
be  resorted  to  without  any  check,  approval  or  even  investigation. 

No  protection,  direct  or  indirect,  is  provided  for  minority  stock- 
holders. The\^  have  no  tribunal  before  which  they  may  go  and 
prevent  a  company  hostile  to  their  interests  from  buying  a  con- 
trolling interest  and  then  proceeding  to  make  inter-company  agree- 
ments and  to  adopt  methods  of  accounting  which  will  seriously 
depress  the  value  of  their  stock.  The  history  of  corporate  fin- 
ance compels  us  to  ask:  How  can  there  be  effective  regulation 
and  protection  of  minority  stockholders  with  holding  companies 
and  with  corporate  relationships  connected  therewith  outside  of 
the  sphere  of  control? 

Without  recommending  that  holding  companies  at  present  ex- 
isting or  the  stocks  now  held  by  them  be  interfered  with,  we  do 
believe  that  the  bill  should  prohibit  any  additional  shares  passing 
into   the   hands  of  holding   companies  without   investigation  and 

17 


approval  of  such  action  by  the  commission,  that  purchases  of  stocks 
in  other  pubUc  utiHties  should  be  subject  to  similar  restriction,  that 
companies  not  public  utilities  should  be  prevented  from  acquiring 
stock  in  public  utilities  beyond  a  certain  small  percentage,  and  that 
the  state  commission  should  always  have  power  to  impose  conditions 
and  enforce  regulations  which  will  protect  minority  interests  and 
the  rights  of  the  public.  Such  provisions  would  not  prevent  any 
act  that  could  be  made  to  appear  in  the  public  interest  to  the  properly 
constituted  public  authority,  but  they  would  bring  about  publicity 
and  compel  those  desiring  such  action  to  show  how  the  public  interest 
would  be  advantaged, 

n. 

CAPITALIZATION  OF  CONSOLIDATED   COMPANIES. 

We  believe  that  the  question  of  consolidation  raises  difficult 
enough  problems  when  considered  alone  and  upon  its  merits.  It 
should,  in  our  opinion,  be  treated  in  each  case  apart  from  other 
questions.  It  certainly  should  not  be  made  the  occasion  of  stock 
watering.  We  therefore  recommend  that  a  clause  be  inserted  de- 
claring that  in  no  case  should  the  capitalization  of  a  company  re- 
sulting from  merger  or  consolidation  exceed  the  capitalization  of 
the  consolidated  companies. 

The  provision  of  the  bill  as  now  drawn  (Section  iig)  opens  the 
gate  very  wide  for  stock  watering  in  providing  that  the  capitaliza- 
tion may  equal  the  value  of  the  property.  Value  may  be  high  because 
of  large  dividends  due  to  excessive  rates.  Capitalizing  according  to 
value  rather  than  according  to  investment  may  be  a  means  of  per- 
petuating excessive  rates,  and  no  commission  should  be  practically 
forced  by  law,  if  companies  so  desire,  to  make  value  a  basis  for 
recapitalization . 

The  modem  doctrine  is  that  capitalization  must  have  a  direct 
relation  to  investment  as  it  may  be  shown  from  time  to  time  by  sound 
bookkeeping  methods.  All  the  more  progressive  states  by  statute 
forbid  the  direct  capitalization  of  a  surplus  simply  because  it  is  a 
surplus.  We  are  opposed  to  allowing  its  capitalization  indirectly 
by  means  of,  and  upon  the  occasion  of,  a  consolidation. 

The  present  bill,  further,  practically  invites  the  consolidation  of 
companies  which  have  a  surplus  with  companies  that  have  watered 
capital;  and  the  water  of  one  may  be  spread  over  the  surplus  of  the 
other.  Naturally  only  those  will  consolidate  whose  value  equals  or 
exceeds  their  joint  capitalization.  If  their  joint  value  falls  below 
their  capitalization,  they  will  not  propose  merger  or  consolidation. 

i8 


Hence,  the  rule  will  be  made  to  work  but  one  way — for  the  capitali- 
zation of  a  surplus;  the  companies  with  deficits  will  never  place 
themselves  within  reach  of  the  commission.  Such  a  one-sided  propo- 
sition is  seldom  sound. 


in. 

STATE  VS.  LOCAL  FRANCHISES. 

In  our  opinion,  Sections  277  to  289,  which  relate  to  franchise 
grants  and  municipal  operation,  should  either  be  omitted  entirely  or  be 
redrafted  along  different  lines.  The  subjects  covered  do  not  properly 
belong  in  a  scheme  for  state  supervision  of  private  corporations 
operating  public  utilities,  and  in  nearly  every  state  they  are  dealt 
with  in  separate  statutes. 

We  particularly  object  to  the  provisions  of  Sections  278  to  280, 
which  undertake  virtually  to  deprive  cities  of  all  control  over  fran- 
chise grants  affecting  their  own  streets.  Any  private  corporation 
now  operating  a  public  utility  may,  under  the  proposed  law,  get  a 
new  franchise  without  the  consent  of  the  municipality,  abutting 
property  owners,  or  the  state  itself.  All  it  has  to  do  is  to  file  a 
document,  and  ipso  facto  it  gets  a  franchise.  In  many  states  such  a 
provision  is  unconstitutional;  and  in  practically  all,  it  is  in  conflict 
with  the  public  policy  of  the  state  as  reflected  by  statute  after  statute. 
It  flagrantly  violates  the  principle  of  home  rule  in  that  it  deprives 
cities  of  the  right  to  manage  and  control  their  own  property — their 
streets  and  public  places. 

Further,  is  the  new  or  old  franchise  to  be  effective  in  case  of  con- 
flict? If  the  old  franchises  are  not  valid  contracts,  the  companies  are 
subject  to  the  commission  without  any  mention  of  the  franchises  in 
this  bill.  If  they  are  valid  contracts,  we  have  no  assurance  that  the 
contracts  either  could  or  would  be  abrogated  by  the  provisions  under 
consideration.  The  stockholders,  and  more  particularly  the  bond- 
holders, may  have  rights  that  they  could  not  be  deprived  of  by  a 
mere  agreement  between  the  companies  and  the  municipality. 

Attention  should  be  called  to  the  fact  that  in  the  proposed  bill 
municipal  authorities  have  nothing  whatever  to  say  as  to  the  terms 
of  any  automatically  renewed  franchise.  They  cannot  exact  any 
compensation  for  the  use  of  public  property.  They  cannot  regulate 
the  extent  or  character  of  use.  They  cannot  determine  the  location 
of  tracks,  wires  or  pipes.  They  cannot  fix  the  terms  or  period  of 
acquisition.  All  these  matters  must  either  be  left  undecided  or 
appeal  must  be  had  to  a  state  board,  ordinarily  located  at  the  state 

19 


capital;  and  many  matters,  if  not  covered  by  the  franchise,  may  not 
be  fixed  after  the  grant  is  made  even  by  a  state  board. 

Any  one  famiHar  with  the  vested  rights  which  attach  to  a  fran- 
chise contract  will  appreciate  how  important  it  is  that  all  franchise 
legislation  be  drawn  with  care.  Those  who  have  been  through  the 
subway  negotiations  in  New  York,  or  the  street  railway  settlements 
in  Chicago  and  Cleveland,  know  that  it  is  unsafe  to  the  public  and 
to  investors  to  leave  so  many  matters  undecided  and  to  attempt  in 
such  a  cursory  and  brief  way  to  dispose  of  such  great  interests  as 
arise  from  the  granting  of  franchises  for  utilities  that  have  practically 
become  necessities  in  the  complex  conditions  of  modem  city  life. 

Without,  therefore,  in  any  manner  implying  that  we  approve  all 
the  other  provisions  of  the  bill,  we  wish  to  enter  our  vigorous  dissent 
to  the  provisions  of  the  bill  relating  to  the  three  matters  discussed 
briefly  above. 

John  H.  Gray, 
E.  M.  Bassett, 
MiLO  R.  Maltbie. 


20 


[Full  Title.] 

AN   ACT 

REGULATING  PUBLIC  UTILITIES,  CREATING 
AND  ESTABLISHING  A  PUBLIC  SERVICE 
COMMISSION,  PRESCRIBING  THE  POWERS 
AND  DUTIES  OF  THE  COMMISSION  AND 
THE  RIGHTS  AND  DUTIES  OF  PUBLIC 
UTILITIES,  PROVIDING  PENALTIES  FOR 
VIOLATIONS  OF  PROVISIONS  OF  THE  ACT, 
REPEALING  LAWS  IN  CONFLICT  WITH  THE 
PROVISIONS  THEREOF  AND  APPROPRI- 
ATING MONEY  TO  CARRY  OUT  THE  PUR- 
POSES OF  THE  ACT. 

[Short  Title.] 
AN  ACT 
Regulating  Public  Utilities  and  Creating  and  Establishing 
A  Public  Service  Commission. 

(Note:   Title  must  conform  to  constitutional  requirements 
of  each  state.) 

It  is  enacted  as  follows: 
1.^    Designation.     This  act  shall  be  known  as  the  public  service  com- 
mission law. 

'  Numbers  3  to  lo,  inclusive,  are  not  assigned  to  sections. 

ARTICLE  I. 
DEFINITIONS. 

11.  Commission.  Unless  otherwise  specified,  the  word  "com- 
mission, "  when  used  in  this  act,  shall  mean  the  Public  Service 

Commission  of ,  which  is  created  and  established 

by  this  act. 

12.  Municipality.  The  term  "municipality, "  when  used  in  this  act, 
shall  mean  and  include  any  borough,  town,  village,  city,  county 
or  other  political  subdivision  of  this  state. 

13.  Municipal  Council.  The  term  "municipal  council,"  when  used 
in  this  act,  shall  mean  and  include  the  city  coimcH,  common 
coimcil,  the  board  of  aldermen,  the  board  of  selectmen,  the 

21 


board  of  trustees,  the  town  or  village  board,  the  city  commis- 
sion, or  any  other  governing  body  of  any  political  subdivision  of 
this  state. 

14.  Person.  The  term  "person, "  when  used  in  this  act,  shall  mean 
and  include  individuals,  associations  of  individuals,  firms,  part- 
nerships, companies,  corporations,  their  lessees,  trustees  or  re- 
ceivers appointed  by  any  court  whatsoever,  in  the  singular  num- 
ber as  well  as  in  the  plural. 

15.  Public  Utility,  (a)  The  term  "public  utility,"  when  used  in  this 
act,  shall  mean  and  include  every  person  that  owns,  operates, 
leases  or  controls,  or  has  power  to  own,  operate,  lease  or  control : 

(i)  Any  plant,  property  or  facility  for  the  transportation 
or  conveyance  to  or  for  the  public  of  passengers  or  property 
by  railroad,  street  railroad  or  water. 

(2)  Any  plant,  property  or  facility  for  the  transmission 
to  or  for  the  public  of  telephone  messages,  for  the  conveyance 
or  transmission  to  or  for  the  public  of  telegraph  messages,  or 
for  the  furnishing  of  facilities  to  or  for  the  public  for  the  trans- 
mission of  intelligence  by  electricity. 

(3)  Any  plant,  property  or  facility  for  the  generation, 
transmission,  distribution,  sale  or  furnishing  to  or  for  the 
public  of  electricity  for  light,  heat  or  power,  including  any 
conduits,  ducts  or  other  devices,  materials,  apparatus  or 
property  for  containing,  holding  or  carrying  conductors  used 
or  to  be  used  for  the  transmission  of  electricity  for  light, 
heat  or  power. 

(4)  Any  plant,  property  or  facility  for  the  mantifacture, 
distribution,  sale  or  furnishing  to  or  for  the  public  of  natural 
or  manufactured  gas  for  light,  heat  or  power. 

(5)  Any  plant,  property  or  facility  for  the  supply,  storage, 
distribution  or  furnishing  to  or  for  the  public  of  water  for 
irrigation,  manufacturing,  municipal,  domestic  or  other 
uses. 

(6)  Any  plant,  property  or  facility  for  the  production, 
transmission,  conveyance,  delivery  or  furnishing  to  or  for 
the  public  of  steam  or  any  other  substance  for  heat  or 
power. 

(7)  Any  plant,  property  or  equipment  for  the  trans- 
portation or  conveyance  to  or  for  the  public  of  oil  by  pipe 
line. 

22 


(b)  None  of  the  provisions  of  this  act  shall  apply  to  the 
generation,  transmission  or  distribution  of  electricity,  to  the 
manufacture  or  distribution  of  gas,  to  the  furnishing  or  distri- 
bution of  water,  or  to  the  production,  delivery  or  furnishing  of 
steam  or  any  other  substance  for  heat  or  power,  by  a  producer 
who  is  not  otherwise  a  public  utility,  for  the  sole  use  of  such 
producer  or  for  the  use  of  tenants  of  such  producer  and  not 
for  sale  to  others. 

(c)  The  term  "public  utility"  shall  also  mean  and  in- 
clude two  or  more  public  utilities  rendering  joint  service. 

16.  Rate.  The  term  "rate,"  when  used  in  this  act,  shall  mean  and 
include,  in  the  plural  number  as  well  as  in  the  singular,  every  in. 
dividual  or  joint  rate,  classification,  fare,  toll,  charge  or  other 
compensation  for  service  rendered  or  to  be  rendered  by  any 
public  utility,  and  every  rule,  regtdation,  practice,  act,  require- 
ment or  privilege  in  any  way  relating  to  such  rate,  fare,  toll, 
charge  or  other  compensation,  and  any  schedule  or  tariff,  or 
part  of  a  schedule  or  tariff,  thereof. 

17.^  Service  Regulation.  The  term  "  service  regulation "  shall 
mean  and  include  every  rule,  regulation,  practice,  act  or  require- 
ment in  any  way  relating  to  the  service  or  facilities  of  a  public 
utility. 

>  Numbers  i8  to  30,  inclusive,  are  not  assigned  to  sections. 


ARTICLE    II. 

ORGANIZATION  OF  A  PUBLIC  SERVICE  COMMISSION. 

31.  Name  and  Constitution.  There  shall  be  created  and  established 
a  commission  which  shall  be  known  as  the  Public  Service  Com- 
mission of ,  consisting  of  five '  members  appointed  by 

the  governor,  by  and  with  the  consent  of  the  senate  (or  council) , 
for  terms  of  five  ^  years  each  or  until  their  successors  are  appointed 
and  qualify.  Immediately  following  the  enactment  of  this  law 
the  governor  shall  appoint  five  commissioners,  one  of  whom 
shall  hold  office  until  the  first  Monday  in  February,  19 15,  two, 
until  the  first  Monday  in  February,  191 7,  and  two,  until  the 
first  Monday  in  February,  19 19,  or  until  their  successors  are 
appointed  and  qualify.- 

>  In  some  states  a  commission  of  three  members  with  terms  of  six  years  each  will  suflBce. 
»  In  states  whose  legislatures  meet  annually  this  provision  should  be  modified  in  such 
a  way  that  a  term  will  expire  and  an  appointment  will  be  made  each  year. 


32.  Salary  of  Commissioners.      Each  commissioner  shall  receive  a 

salary  of  a  year/  payable  in  the  same  manner  as  the 

salaries  of  other  state  officers. 

'  The  salaries  of  the  commissioners  should  be  not  less  than  the  salaries  paid  the  judge 
of  the  highest  state  court. 

33.  Chairman  Designated  by  Members.'  As  soon  as  possible  after 
the  first  appointment  of  commissioners  under  this  act  the  persons 
so  appointed  shall  meet  at  the  state  capitol  and  organize  by 
choosing  one  of  their  number  as  chairman.  Thereafter  when- 
ever a  new  appointment  is  made  or  whenever  any  vacancy  in 
the  commission  is  filled  the  commissioners  shall  meet  and  choose 
one  of  their  number  as  chairman. 

'Alternative:  Chairman  appointed.  The  Governor  shall  designate  one  of  the  com- 
missioners to  be  chairman  during  the  term  of  office  to  which  he  is  appointed  and  until  his 
successor  is  appointed  and  qualifies.  As  soon  as  possible  after  the  first  appointment  of 
commissioners  under  this  act,  the  persons  so  appointed  shall  meet  at  the  state  capitol  and 
organize.  They  shall  choose  one  of  their  number  chairman  pro  tempore  in  the  absence  or 
disability  of  the  chairman.  Thereafter,  when  a  new  appointment  is  made  or  when  a  va- 
cancy in  the  commission  is  filled,  the  commissioners  shall  meet  and  choose  one  of  their 
number  to  be  chairman  pro  tempore  in  the  absence  or  disability  of  the  chairman. 

34.  Quorum  of  Commission.  A  majority  of  the  commission  shall 
constitute  a  quorum  to  transact  business,  and  no  orders  of  the 
commission  shall  be  effective  without  the  concurrence  of  a  ma- 
jority of  the  commission. 

35.  Oath.  Each  commissioner  shall  take  and  subscribe  to  the  oath 
of  office  prescribed  for  state  officers  by  the  constitution. 

36.  Disqualification  for  Membership.  No  person  employed  by,  or 
connected  with,  or  holding  any  official  relation  to,  or  owning 
stocks  or  bonds  of,  or  having  any  pecuniary  interest  in,  any 
public  utility  under  the  jurisdiction  of  the  commission  shall  be 
eligible  to  enter  upon  the  duties  or  to  fill  the  office  of  com- 
missioner. 

37.  Removal  of  Commissioner.  The  governor  at  any  time  may  re- 
move any  commissioner  from  office  for  inefficiency,  neglect  of 
duty,  misconduct  or  malfeasance  in  office,  for  accepting,  directly 
or  indirectly,  any  gift,  gratuity,  emolument  or  employment 
from  any  public  utility  under  the  jurisdiction  of  the  commission 
for  voluntarily  becoming  interested  pecuniarily  in  any  such  public 
utility  or  for  failing  to  divest  himself  within  a  reasonable  time  of 
any  interest  in  any  such  public  utility  acquired  otherwise  than 
voluntarily,  or  for  holding  another  office  under  the  constitution  or 
laws  of  this  state  or  of  the  United  States.  Before  any  commis- 
sioner may  be  removed  he  shall  be  given  a  copy  of  charges  made 
against  him  and  a  time  shall  be  fixed  when  he  may  be  heard  pub- 
licly in  his  own  defense,  which  time  shall  be  not  less  than  ten  days 
thereafter.     If  the  commissioner  shall  be  removed  the  governor 

24 


shall  file  in  the  office  of  the  secretary  of  state  a  complete  state- 
ment of  all  charges  against  such  commissioner  and  of  the  findings 
thereon,  with  a  record  of  the  proceedings. 

38.  Manner  of  Filling  Vacancies.  Every  vacancy  in  the  commission 
shall  be  filled  for  the  unexpired  term  by  appointment  by  the 
governor  with  the  consent  of  the  senate  (or  council),  provided, 
that  if  any  vacancy  occurs  while  the  legislature  is  not  in  session 
the  governor  may  make  an  interim  appointment. 

39.  How  to  Sue  and  Be  Sued.       The  commission  may  sue  and  be 

sued  by  its  official  name. 

40.  Seal.     The  commission  shall    have  an  official  seal  bearing  the 

words  "Public  Service  Commission  of ,"  of  which  the 

courts  shall  take  judicial  notice. 

41.  Conduct  of  Members  and  Employes.  No  commissioner  or  per- 
son appointed  and  regularly  employed  by  and  receiving  a  salary 
from  the  commission  shall  accept  any  gift,  gratiiity,  emolument 
or  employment  from  any  public  utility  under  the  jurisdiction  of 
the  commission  or  any  officer,  agent  or  employe  thereof,  nor 
shall  any  commissioner  or  person  appointed  or  regularly  em- 
ployed by  and  receiving  a  salary  from  the  commission  solicit, 
request  from,  or  recommend,  directly  or  indirectly  to,  any 
such  public  utility  or  any  officer  or  agent  or  employe  thereof  the 
appointment  of  any  person  to  any  place  or  position.  No  com- 
missioner shall  hold  any  other  public  office. 

42.  Office  of  Commission.  The  principal  office  of  the  commission 
shall  be  in  the  city  of . 

43.  Equipment  of  Commission.  The  commission  shall  be  provided 
by  the  state  with  such  offices,  equipment  and  facilities  as  may  be 
necessary  for  the  performance  of  its  duties. 

44.  Provision  of  Funds.  There  shall  be  appropriated  out  of  the 
general  funds  for  the  maintenance  and  conduct  of  the  com- 
mission such  stuns  as  may  be  necessary  reasonably  to  enable  the 
commission  to  perform  its  duties. 

46.  Secretary  of  Commission.  The  commission  shall  appoint  a 
secretary  who  shall  serve  during  the  pleasure  of  the  commission, 
shall  take  the  usual  oath  of  office,  shall  keep  a  record  of  all  the 
proceedings,  transactions,  commimications,  minutes  and  official 
acts  of  the  commission  and  perform  such  other  duties  as  the 

25 


commission  may  prescribe,  and  shall  receive  a  salary  in  an  amount 
fixed  by  the  commission. 

46.  Attorney  of  Commission.  The  commission  is  authorized  to 
appoint  and  employ  an  attorney  at  a  salary  not  exceeding 

per  annimi^  who  shall  be  a  resident  of  this  state  and  whose 

duty  it  shall  be  to  represent  the  commission  in  all  proceedings 
in  any  court  or  before  any  department  of  the  federal  government 
to  which  the  commission  may  be  a  party  and  to  advise  the  com- 
mission in  any  matter  or  matters  and  otherwise  and  in  all  respects 
to  comply  with  the  directions  of  the  commission. 

•  The  salary  of   the  attorney  should  be  the  same  as  that  of  the  attorney  general  of 
the  state. 

47.^  Employes  and  Appointees.  The  commission  is  authorized  to 
appoint  and  employ  such  other  persons  as  may  be  necessary  to 
enable  it  to  perform  the  duties  imposed  upon  it  by  this  act 
and  to  designate  the  duties  and  compensation  of  such  appointees 
and  employes. 

1  Numbers  48  to  70,  inclusive,  are  not  assigned  to  sections. 


26 


ARTICLE    III. 
GENERAL  POWERS  OF  COMMISSION. 

71.  Supervision  and  Regulation  of  Utilities.  The  commission  shall 
have  general  power  to  regulate  and  supervise  every  public  utility 
in  accordance  with  the  provisions  of  this  act. 

72.  Arbitration.  Whenever  any  public  utility  has  a  controversy 
with  any  other  person  and  all  the  parties  to  such  controversy 
agree  in  writing  to  submit  such  controversy  to  the  commission 
as  arbitrators,  the  commission  may  act  as  such  arbitrators,  and 
after  due  notice  to  all  parties  interested  may  proceed  to  hear 
such  controversy,  and  their  award  shall  be  final. 

73.  Authority  to  Confer  with  Other  Commissions.  The  commission 
may  confer  in  person,  by  attending  conventions  or  otherwise, 
with  the  members  of  railroad  or  other  public  utility  commis- 
sions of  other  states  and  with  the  interstate  commerce  com- 
mission on  any  matters  relating  to  public  utilities. 

74.  Right  to  Inspect  Books  and  Examine  Agents  of  Public  Utilities. 

The  commission,  or  any  commissioner,  or  any  person  or  persons 
employed  by  the  commission,  shall,  upon  demand,  have  the 
right  to  inspect  or  examine  the  books,  papers,  accounts,  docu- 
ments, plant,  property  and  facilities  of  any  public  utility  and  to 
examine  under  oath  any  officer,  agent  or  employe  of  such  public 
utility  in  relation  to  its  business  and  affairs;  provided,  that  any 
person  other  than  one  of  the  commissioners  shall  produce  when 
so  requested  his  authority  to  make  inspections  or  examinations 
imder  the  hand  of  a  commissioner  or  of  the  secretary  and  under 
the  seal  of  the  commission. 

75.  Commission  May  Require  Production  of  Books.  The  commis- 
sion by  order  may  require  any  public  utility  or  any  officer  or 
agent  thereof  to  produce  within  the  state  at  such  time  and  place 
as  it  may  designate  any  accoimts,  records,  memoranda,  books  or 
papers  kept  in  any  office  or  place  without  or  within  the  state  or 
verified  copies  thereof  in  order  that  an  examination  thereof 
may  be  made  by  the  commission  or  by  any  person  under  its 
direction. 

27 


76.  Summary  Investigation.  Whenever  the  commission  shall  be- 
lieve that  an  investigation  of  any  act  or  omission  to  act,  accom- 
plished or  proposed,  or  an  investigation  of  any  rate,  service, 
facility  or  service  regulation  of  any  public  utility  should  be 
made  in  order  to  secure  compliance  with  the  provisions  of  this 
act  and  orders  of  the  commission  it  may  of  its  own  motion  sum- 
marily investigate  the  same. 

77.  Complaints.  (a)  Any  public  utility,  or  any  person  served  or 
claiming  the  right  to  be  served  thereby,  or  any  municipality,  or 
the  attorney  general  may  complain  to  the  commission  of  any 
thing,  actual  or  proposed,  done  or  omitted  to  be  done  in  viola- 
tion of  any  provision  of  this  act  or  of  an  order  of  the  commission, 
and  it  shall  be  the  duty  of  the  commission  to  entertain  such 
complaint  and  to  proceed  therewith  as  provided  for  elsewhere 
in  this  act. 

(b)  Upon  any  such  complaint  alleging  that  any  rate  is 
unjust,  unreasonable,  unjustly  discriminatory,  unduly  preferen- 
tial, or  otherwise  or  in  any  respect  in  violation  of  any  provision 
of  this  act,  the  commission  may  proceed  to  investigate  the 
matters  complained  of  as  provided  for  elsewhere  in  this  act. 

(c)  Upon  any  such  complaint  alleging  that  any  service  or 
service  regulation  is  unjustly  discriminatory  or  unduly  preferen- 
tial, or  that  any  service  or  facility  is  inadequate  or  unsafe,  or 
that  any  service  regulation  is  unjust  or  unreasonable,  or  that 
any  service,  facility  or  service  regulation  is  otherwise  or  in  any 
respect  in  violation  of  any  provision  of  this  act,  the  commission 
may  proceed  to  investigate  the  matters  complained  of  as  pro- 
vided for  elsewhere  in  this  act. 

78.  Scope  of  Investigations.  In  conducting  any  investigation  pur- 
suant to  the  provisions  of  this  act,  the  commission  may  investi- 
gate, consider  and  determine  such  matters  as  the  cost  or  value,  or 
both,  of  the  property  and  business  of  any  public  utility,  used  and 
useful  for  the  convenience  of  the  public,  and  all  matters  affecting 
or  influencing  such  cost  or  value;  the  operating  statistics  of  any 
public  utility,  both  as  to  revenues  and  expenses  and  as  to  the 
physical  features  of  operation,  in  such  detail  as  the  commission 
may  deem  advisable;  the  physical  characteristics  and  geograph- 
ical limits  of  the  locality  or  area  affected  by  the  service  of  a  public 
utility;  and  such  other  matters  as  may  have  a  bearing  upon  the 
subjects  imder  investigation.  Every  public  utility  shall,  at  the 
request  of  the  commission,  furnish  all  available  information  in 
aid  of  such  investigation. 

28 


79.  Commission  May  Make  Orders.  Whenever  after  investigation 
in  accordance  with  the  provisions  of  this  act,  the  commission 
shall  be  of  the  opinion  that  any  provision  or  requirement  of  this 
act  or  any  order  of  the  commission  is  being,  has  been,  or  is  about 
to  be  violated,  it  may  make  and  enter  of  record  an  order  in  the 
premises,  specifying  the  actual  or  proposed  acts  or  omissions  to 
act  which  constitute  such  real  or  proposed  violation,  and  re- 
quiring that  such  violation  be  discontinued  or  rectified,  or  both, 
or  that  it  be  prevented.  No  order,  however,  shall  be  made  by  the 
commission  which  requires  the  change  of  any  rate  or  service, 
facility  or  service  regiilations  except  as  otherwise  specifically 
provided,  unless  or  until  a  public  hearing  has  been  held  in  ac- 
cordance with  the  provisions  of  this  act. 

80.  Determination  of  Reasonable  Rates.  If  upon  hearing  and  in- 
vestigation any  rate  shall  be  found  by  the  commission  to  be  im- 
just,  unreasonable,  unjustly  discriminatory  or  unduly  preferen- 
tial or  otherwise  or  in  any  respect  in  violation  of  any  provision 
of  this  act,  the  commission  may  fix  and  order  substituted 
therefor  such  rate  as  it  shall  determine  to  be  just  and  reason- 
able and  in  compliance  with  the  provisions  of  this  act.  Such 
rate  so  ascertained,  determined  and  fixed  by  the  commission, 
shall  be  charged,  enforced,  collected  and  observed  by  l^he  public 
utility  for  a  period  of  time  fixed  by  the  commission  of  not  more 
than  three  years. 

81.  Commission  May  Prescribe  Service  or  Facilities.  If  upon  hear- 
ing and  investigation  any  service  or  service  regulation  of  any 
public  utility  shall  be  found  by  the  commission  to  be  unjustly 
discriminatory  or  imdtdy  preferential,  or  any  service  or  facility 
shall  be  found  to  be  inadequate  or  unsafe,  or  any  service  regu- 
lation shall  be  foimd  to  be  imjust  or  unreasonable,  or  any  service, 
facility  or  service  regulation  shall  be  found  otherwise  or  in  any 
respect  to  be  in  violation  of  any  provision  of  this  act,  the  com- 
mission may  prescribe  and  order  substituted  therefor  such  ser- 
vice, facility  or  service  regulation  as  it  shall  determine  to  be 
adequate  and  safe,  or  just  and  reasonable,  as  the  case  may  be 
and  otherwise  in  compliance  with  the  provisions  of  this  act.  It 
shaU  be  the  duty  of  the  public  utility  to  comply  with  and  con- 
form to  such  determination  and  order  of  the  commission. 

82.  Division  of  Expense  Incurred  by  Utilities  Rendering  Joint 
Service.  Whenever  any  order  of  the  commission  involves  ex- 
penditures of  any  sum  or  simis  by  public  utilities  rendering  any 

29 


joint  service  or  services  and  the  public  utilities  affected  thereby 
shall  fail  to  agree  upon  the  division  or  apportionment  thereof 
within  a  reasonable  time  after  the  service  of  such  order,  the 
commission  may  issue  a  supplemental  order  declaring  the  ap- 
portionment or  division  of  such  expense. 

83.  Publicity  of  Commission  Records.  All  reports,  records,  and 
accoimts  in  the  possession  of  the  commission  shall  be  open  to 
inspection  by  the  public  at  all  times,  except  as  otherwise  provided 
in  this  act  or  as  ordered  by  the  commission  and  under  rules  pre- 
scribed by  the  commission. 

84.  Fees.  The  commission  is  authorized  to  fix  and  establish  a 
schedule  of  fees  to  be  charged  for  copies  of  opinions,  orders, 
reports  and  other  records  of  the  commission  and  certifications 
under  the  seal  of  the  commission.  All  fees  received  by  the 
commission  shall  be  tiuned  over  to  the  state  treasurer  at 
monthly  intervals. 

85.  Annual  Report  to  Governor.  Annually  on  or  before  the  first  day 
of  February  the  commission  shall  report  to  the  governor  for 
transmittal  to  the  legislature  its  proceedings  for  the  preceding 
year.  Such  report  shall  set  forth  in  such  detail  as  the  commis- 
sion may  deem  expedient  all  proceedings  and  investigations  of 
the  commission  during  such  period  and  shall  contain  abstracts 
of  the  annual  reports  of  public  utilities  prepared  by  the  com- 
mission. It  shall  also  contain  recommendations  of  the  commission 
for  new  legislation  and  any  other  matters  the  commission  de- 
sires to  call  to  the  attention  of  the  governor  and  legislature. 
A  sufficient  number  of  copies  of  this  report  to  accommodate  all 
reasonable  requests  therefor  shall  be  printed. 

86^  Incidental  Powers.  In  addition  to  the  powers  herein  specifically 
granted,  the  commission  shall  have  such  implied  or  incidental 
powers  as  may  be  necessary  and  proper  effectually  to  carry  out, 
perform  and  execute  all  the  powers  so  granted. 

*  Numbers  87  to  ipo,  inclusive,  are  not  assigned  to  sections. 


30 


ARTICLE   IV. 
REGULATION   OF  STOCK  AND   BOND  ISSUES. 

101.  Right  to  Issue  Stock  and  Create  Lien  a  Special  Privilege.     The 

power  of  public  utilities  to  issue  stocks,  stock  certificates,  bonds; 
notes  and  other  evidences  of  indebtedness,  in  case  of  public 
utilities  incorporated  under  the  laws  of  this  state,  and  to  create 
liens  on  property  in  this  state,  in  case  of  public  utilities  incor- 
porated under  the  laws  of  any  state,  is  a  special  privilege,  the 
right  of  supervision,  regulation,  restriction  and  control  of  which 
is  and  shall  continue  to  be  vested  in  the  state,  and  such  power 
shall  be  exercised  as  provided  by  law  and  under  such  rules  and 
regulations  as  the  commission  may  prescribe. 

102.  State  Does  Not  Guarantee  Stocks,  Bonds,  etc.  No  provision  of 
this  act  and  no  deed  or  act  done  or  performed  under  or  in  con- 
nection therewith  shall  be  held  or  construed  to  obligate  the  state 
of to  pay  or  guarantee  in  any  manner  whatso- 
ever any  stock,  stock  certificate,  bond,  note  or  other  evidence  of 
indebtedness  authorized,  issued  or  executed  under  the  provisions 
of  this  or  any  other  act,  or  to  pay  or  guarantee  in  any  manner 
whatsoever  any  interest  or  dividends  thereon. 

103.  Purpose  for  Which  Stocks,  Bonds,  etc.,  May  be  Issued.  Subject 
to  the  provisions  of  this  act  and  of  the  order  of  the  commission 
issued  as  provided  in  this  act,  a  public  utility  may  issue  stocks, 
stock  certificates,  bonds,  notes  and  other  evidences  of  indebt- 
edness payable  at  periods  of  more  than  12  months  from  the 
date  thereof,  when  necessary  and  reasonably  required  for  the 
following  purposes  and  no  others,  viz., 

(a)  Acquisition  of  property. 

(b)  Construction,  extension,  betterment,  or  im- 
provement of  or  addition  to  its  facilities. 

(c)  Discharge  or  lawful  refunding  of  its  obliga- 
tions. 

(d)  Reimbursement  of  moneys  actually  expended 
from  income  or  from  any  other  moneys  in  the  treasury 
of  the  public  utility  not,  directly  or  indirectly,  secured 
by  or  obtained  from  the  issue  of  stocks,  stock  certifi- 
cates, bonds,  notes  or  other  evidences  of  indebtedness 
of  such  public  utility,  within  five  years  next  prior  to 
the  filing  of  an  application  with  the  commission  for  the 

31 


required  authorization,  for  any  of  the  aforesaid  pur- 
poses, not  including  maintenance  of  service,  replace- 
ments and  substitutions  (if  the  applicant  shall  have  kept 
its  accounts  and  vouchers  for  such  expenditures  in  such 
manner  as  to  enable  the  commission  to  ascertain  the 
amount  of  moneys  so  expended  and  the  purposes  for 
which  such  expenditures  were  made  and  the  sources  of 
the  funds  in  the  treasury  of  the  public  utility  applied 
to  such  expenditiu"es.) 

Provided,  and  not  otherwise,  that  such  public  utility  in 
addition  to  the  other  requirements  of  law  shall  first  have  se- 
cured from  the  commission  an  order  authorizing  such  issue  as 
provided  in  this  act. 

104.  Issues  not  to  Exceed  Amounts  Reasonably  Required.  No  public 
utility  shall  issue  any  stocks,  stock  certificates,  bonds,  notes  or 
other  evidences  of  indebtedness  to  an  amount  exceeding  that 
which  may  be  necessary  and  reasonably  required  to  enable  such 
public  utility  to  perform  its  duty  to  the  public  and  for  the  pur- 
pose for  which  such  issue  of  stocks,  stock  certificates,  bonds, 
notes  or  other  evidences  of  indebtedness  may  be  authorized. 

105.  Stock  Issued  at  Par  Only.  No  public  utility  shall  issue  any  stock 
or  stock  certificate  except  in  consideration  of  money,  or  of  services 
or  property  at  the  true  money  value  thereof  as  found  and  de- 
termined by  the  commission,  actually  received  by  such  public 
utility  equal  to  or  in  excess  of  the  face  value  of  such  stock  or 
stock  certificate. 

106.  Bonds  May  Be  Issued  Below  Par.  No  public  utility  shall  issue 
any  bonds,  notes  or  other  evidences  of  indebtedness,  except  in 
consideration  of  money,  or  of  services  or  property  at  the  true 
money  value  thereof  as  found  and  determined  by  the  commission, 
actually  received  by  such  public  utility  equal  to  or  in  excess  of 
the  true  money  value  of  the  bonds,  notes  or  other  evidences  of 
indebtedness  issued  therefor;  and  in  no  case  shall  the  money  or 
the  true  money  value  of  the  services  or  property  as  found  and 
determined  by  the  commission  be  less  than  75  per  cent,  of  the 
face  value  of  the  bonds,  notes  or  other  evidences  of  indebted- 
ness. 

107.  Refunding  Debt  Discount  and  Expense.  The  commission 
may  require  every  public  utility  that  issues  any  bonds,  notes  or 
other  evidences  of  indebtedness  for  an  amount  or  amounts  (in 
money  or  in  property  or  services  at  the  true  money  value  thereof 

32 


as  found  and  determined  by  the  commission)  less  than  the  par 
value  thereof  to  provide  for  the  amortization  of  the  discount 
and  all  expenses  connected  with  the  issuance  of  said  bonds,  notes 
or  other  evidences  of  indebtedness  during  a  period  of  time  fixed 
by  the  commission,  and  thereafter  no  bonds,  notes  or  other 
evidences  of  indebtedness  issued  for  the  purpose  of  paying, 
refunding,  retiring  or  discharging  any  such  bonds,  notes  or  other 
evidences  of  indebtedness  shall  be  issued  to  pay,  refund,  retire 
or  discharge  such  discount  and  expenses  to  an  amount  greater 
than  the  commission  shall  have  determined  to  be  reasonable  and 
consistent  with  the  plan  of  amortization  adopted.  No  such 
public  utility  shall  declare  any  dividends  from  the  earnings  of 
any  year  until  all  amortization  of  debt  discount  and  expenses 
accrued  and  due  up  to  that  time  has  been  provided  for. 

108.  Relative  Proportions  of  Stocks  and  Bonds.  The  amount  of 
bonds,  notes  and  other  evidences  of  indebtedness  which  any 
public  utility  may  issue  shall  bear  a  reasonable  proportion  to  the 
amount  of  stock  and  stock  certificates  issued  by  such  public 
utility,  due  consideration  being  given  to  the  nature  of  the  busi- 
ness in  which  the  public  utility  is  engaged,  its  credits,  earnings 
and  prospects,  and  to  the  effect  which  such  issue  will  have  upon 
the  management  and  efficiency  of  operation  of  the  public  utility, 
so  as  to  secure  an  adequate  relative  amount  of  financial  interest 
and  risk  on  the  part  of  the  stockholders  in  the  public  utility. 

109.  What  Order  Shall  Show.  The  order  of  the  commission  author- 
izing the  issue  of  any  stocks,  stock  certificates,  bonds,  notes  or 
other  evidences  of  indebtedness,  payable  at  periods  of  more 
than  12  months  from  the  date  thereof,  shall  state: 

(a)  The  amount  and  character  of  the  authorized  issue. 

(b)  The  purpose  or  purposes  to  which  the  issue  or  the 
proceeds  thereof  are  to  be  applied. 

(c)  That,  in  the  opinion  of  the  commission,  the  money, 
property  or  services  to  be  prociured  or  paid  for  by  such  issue  is 
necessary  and  reasonably  required  to  enable  the  public  utility  to 
perform  its  duty  to  the  public  and  for  the  purpose  or  purposes 
specified  in  the  order. 

(d)  That,  in  the  opinion  of  the  commission,  the  proposed 
expenditures  for  such  purpose  or  purposes  are  not  in  whole  or 
in  part  reasonably  chargeable  to  income,  except  as  otherwise 
permitted  by  the  order. 

(e)  That  the  value  of  the  property,  services  or  other  consider- 

33 


ation  as  found  and  determined  by  the  commission,  for  which,  in 
whole  or  in  part,  such  issue  is  to  be  made,  is  equal  to  or  in  excess 
of  the  par  value  of  the  stocks  or  stock  certificates,  or  the  value 
of  the  bonds,  notes  and  other  evidences  of  indebtedness  to  be 
issued  therefor. 

(f)  That,  in  the  case  of  bonds,  notes  and  other  evidences  of 
indebtedness,  the  amount  of  all  bonds,  notes  and  other  evidences 
of  indebtedness,  including  those  just  authorized,  bears  a  reason- 
able proportion  to  the  total  amount  of  stocks  and  stock  cer- 
tificates outstanding. 

(g)  The  terms  and  conditions  upon  which  the  issue  is 
authorized. 

110.  Authority  of  Commission.  The  commission  may  by  order 
authorize  the  issue  of  stocks,  stock  certificates,  bonds,  notes  or 
other  evidences  of  indebtedness,  in  the  amount  applied  for  or  in 
a  lesser  amount,  or  in  a  greater  amount,  or  not  at  all,  and  may 
attach  to  the  exercise  of  this  authority  such  terms  and  conditions 
as  it  may  deem  just,  reasonable  or  proper. 

111.  Character  of  Investigation  by  Commission.  For  the  purpose  of 
enabling  it  to  determine  whether  the  proposed  issue  complies 
with  all  provisions  of  law  and  whether  it  should  be  authorized, 
the  commission  may  determine  the  true  money  value  in  detail 
of  the  property  or  services,  for  which  it  is  proposed  to  issue,  in 
whole  or  in  part,  such  stocks,  stock  certificates,  bonds,  notes 
or  other  evidences  of  indebtedness,  and  shall  make  such  inquiry 
or  investigation,  hold  such  hearings  and  examine  such  wit- 
nesses, books,  papers,  documents  or  contracts  as  it  may  deem 
of  importance  in  enabling  it  to  reach  a  determination.  The 
commission  may  also  make  a  valuation  of  all  the  property  of  the 
public  utility  if  it  deems  it  pertinent  to  the  inquiry  or  investiga- 
tion, and  may  require  such  utility  to  furnish  such  statements, 
information  and  facts  as  the  commission  may  deem  pertinent. 

112.  Limitation  of  Application  of  Article.  The  provisions  of  this  act 
requiring  public  utilities  to  secure  the  approval  of  the  commis- 
sion before  issuing  any  stocks,  stock  certificates,  bonds,  notes  or 
other  evidences  of  indebtedness,  shall  not  apply  to  stocks,  stock 
certificates,  bonds,  notes  or  other  evidences  of  indebtedness 
lawfully  issued  before  this  act  becomes  a  law  nor  to  any  mort- 
gage, deed  of  trust  or  other  similar  instrument  lawfully  exe- 
cuted and  delivered  before  this  act  becomes  a  law. 

34 


113.  Utilities  Authorized  to  Issue  Notes  for  a  Year.  A  public  utility 
may  issue  notes  for  proper  purposes  and  not  in  violation  of  any 
provision  of  this  or  of  any  other  act,  payable  at  periods  of  not 
more  than  one  year  from  the  date  thereof,  without  the  approval 
of  the  commission.  A  public  utility  may  issue  like  notes  pay- 
able at  periods  of  not  more  than  one  year  from  the  date  thereof 
to  pay,  retire,  discharge  or  refund,  in  whole  or  in  part,  any  such 
note  or  notes  authorized  by  this  section  to  be  issued  without  the 
approval  of  the  commission,  and  may  continue  from  time  to 
time  for  a  period  not  exceeding  in  the  aggregate  five  years  from 
the  date  of  issue  of  the  first  note  or  notes  to  issue  notes  of  the 
same  character  to  pay,  retire,  discharge  or  refund,  in  whole  or  in 
part,  notes  previously  issued  for  the  same  purpose  under  the 
authority  of  this  section.  Except  as  otherwise  in  this  section  ex- 
pressly authorized,  no  such  notes  payable  at  periods  of  not  more 
than  one  year  from  the  date  thereof  shall,  in  whole  or  in  part, 
directly  or  indirectly,  be  paid,  retired,  discharged  or  refunded 
by  any  issue  of  stocks,  stock  certificates,  bonds,  notes  or  other 
evidences  of  indebtedness  of  any  term  or  character,  or  from  the 
proceeds  thereof,  without  the  approval  of  the  commission. 

114.  Issues  Previously  Authorized.  The  provisions  of  this  act 
shall  apply  to  all  stocks,  stock  certificates,  bonds,  notes  and 
other  evidences  of  indebtedness  of  any  public  utility,  other  than 
notes  payable  at  periods  of  not  more  than  one  year  from  the 
date  thereof,  issued  by  any  public  utility  after  this  act  becomes 
a  law  upon  the  authority  of  any  articles  of  incorporation  or 
amendments  thereto,  or  vote  of  the  stockholders  or  directors 
filed,  taken  or  had  before  this  act  becomes  a  law. 

115.  Application  of  Proceeds  of  Issues.  No  public  utility  shall  with- 
out the  consent  of  the  commission  apply  the  issue,  or  any  part 
thereof,  of  any  stock,  stock  certificate,  bond,  note  or  other 
evidence  of  indebtedness,  or  any  proceeds  thereof,  to  any  purpose 
not  specified  in  the  commission's  order,  or  to  any  purpose  so  speci- 
fied in  excess  of  the  amoiuit  authorized  for  such  purpose,  or  issue 
or  dispose  of  the  same  on  terms  or  conditions  different  from 
those  specified  in  such  order,  or  a  modification  thereof.  Every 
term,  condition,  provision  and  requirement  contained  in  such 
order  shall  be  enforced,  fulfilled  and  obeyed  by  the  public  utility 
affected. 

116.  Duty  of  Utilities  to  Account  to  Commission  for  Disposition  of 
Proceeds.     The  commission  may  require  any  public  utility  to 

^  35 


account  for  the  disposition  of  the  proceeds  of  all  issues  under  the 
provisions  of  this  act  of  stocks,  stock  certificates,  bonds,  notes 
and  other  evidences  of  indebtedness,  in  such  form  and  detail  as 
it  may  deem  advisable,  and  to  do  and  perform  any  and  all  acts 
necessary  to  carry  out  the  provisions  of  this  act. 

117.  Contract  for  Consolidation  or  Lease  Shall  Not  Be  Capitalized. 

No  contract  for  consolidation,  merger  or  lease  shall  be  capital- 
ized, nor  shall  any  public  utility  hereafter  issue  any  bonds,  notes 
or  other  evidences  of  indebtedness  against  any  contract  for 
consolidation,  merger  or  lease;  but  this  shall  not  prevent  the 
granting  under  mortgage  or  deed  of  trust  with  the  approval  of 
the  commission  of  any  contract  for  consolidation,  merger  or 
lease. 

118.  Franchises  Not  to  Be  Capitalized.  No  public  utility  shall  capi- 
talize, directly  or  indirectly,  any  franchise  to  be  a  corporation,  or 
any  other  franchise,  right  or  privilege,  or  any  right  to  own,  oper- 
ate or  enjoy  any  such  franchise,  right  or  privilege  whatsoever, 
in  excess  of  the  amount  (exclusive  of  any  tax  or  annual  charge) 
actually  paid  to  the  state  or  to  a  political  subdivision  thereof  as 
a  consideration  for  the  grant  of  such  franchise,  right  or  privilege; 
and  in  determining  the  value  of  the  property  of  a  public  utility 
for  the  purposes  of  this  act,  no  franchise,  right  or  privilege 
granted  to  a  public  utility  by  the  state  or  by  a  political  sub- 
division thereof  shall  be  appraised,  fixed  or  considered  at  any 
greater  amount  or  value  than  the  sum  paid  therefor  into  the 
public  treasury  of  the  state  or  of  the  political  subdivision  grant- 
ing the  same  (exclusive  of  any  tax  or  annual  charge). 

119.  Capital  Stock  of  Consolidated  Corporation.  The  capital  stock, 
stock  certificates  and  debt  of  a  public  utility  resulting  from 
merger  or  formed  by  consolidation  of  two  or  more  public  utilities 
shall  not  exceed  the  value  of  the  properties  merged  or  con- 
solidated as  foimd  and  determined  by  the  commission. 

120.  Reorganized  Utilities.  Any  public  utility  which  shall  have,  or 
may  hereafter,  become  the  owner  or  assignee  of  any  right,  power, 
privilege  or  franchise  of  any  other  public  utility,  in  whole  or  in 
part,  directly  or  through  an  intermediate  grantor  or  grantors, 
under  a  deed  of  trust,  mortgage  sale,  sale  in  bankruptcy  pro- 
ceedings or  sale  under  any  judgment,  order,  decree  or  proceedings 
of  any  court,  including  the  courts  of  the  United  States,  shall  be 
subject  to  the  same  power  of  supervision,  regulation,  restriction 

36 


and  control  that  applies  to  other  public  utilities  under  the  pro- 
visions of  this  act. 

121.'  Impairment  of  Capital.  If  the  commission  determines  that  the 
capital  of  a  public  utility  has  been  or  is  being  impaired  or  that 
stocks,  stock  certificates,  bonds,  notes  or  other  evidences  of 
indebtedness  have  been  issued  in  whole  or  in  part  for  purposes 
which  should  have  been  charged  to  income,  the  commission  may 
by  order  require  such  public  utility  to  set  aside  within  a  reason- 
able time  a  sum  of  money  annually  or  monthly  out  of  income  or 
from  any  other  moneys  in  the  treasury  of  the  public  utility  not, 
directly  or  indirectly,  secured  or  obtained  from  the  issue  of 
stocks,  stock  certificates,  bonds,  notes  or  other  evidences  of 
indebtedness  of  such  public  utility  and  may  prescribe  the  period  for 
which  such  amount  shall  be  set  aside,  the  use  to  be  made  of  such 
funds  and  such  other  conditions  and  requirements  as  it  may 
determine  are  just,  reasonable  or  proper. 

'  Numbers  122  to  130,  inclusive,  are  not  assigned  to  sections. 


ARTICLE   V. 

INTERCORPORATE   RELATIONS. 

131.    Manner  of  Assignment,  Lease,  Mortgage,  etc.,  of  Property.   No 

public  utility  shall,  after  this  act  becomes  a  law,  assign,  transfer, 
lease,  mortgage,  grant  in  trust,  sell,  or  otherwise  dispose  of  or 
enomiber,  directly  or  indirectly,  by  any  means  whatsoever,  the 
whole  or  any  part  of  its  franchises,  plant,  equipment  or  other 
property  necessary  or  useful  in  the  performance  of  its  duties  to 
the  public  without  first  having  secured  from  the  commission  an 
order  approving  such  assignment,  transfer,  lease,  mortgage, 
grant  in  trust,  sale,  disposal  or  encumbrance. 

Nothing  in  this  section  shall  be  construed  to  prevent  the 
sale,  lease,  assignment  or  transfer  by  any  public  utility  of  any 
plant,  equipment  or  other  property  (exclusive  of  any  franchise, 
permit,  right  or  privilege  to  own  or  operate  a  plant  of  a  pub- 
lic utility) ,  which  is  not  necessary  or  useful  in  the  performance  of 
its  duties  to  the  public,  and  any  property  sold,  leased,  assigned 
or  transferred  by  a  public  utility  without  the  approval  of  the  com- 
mission, shall  be  conclusively  presumed  to  be  property  which  is 
not  useful  or  necessary  in  the  performance  of  its  duties  to  the 
public  as  to  any  purchaser  of  such  property  in  good  faith  for 
value. 

37 


132.  Manner  of  Merger  or  Consolidation.  No  public  utility  shall, 
by  any  means  whatsoever,  director  indirect,  merge  or  consolidate 
its  franchises,  plant,  equipment  or  other  property  with  that  of  any 
other  public  utility  without  first  having  secured  from  the  com- 
mission an  order  approving  such  merger  or  consolidation. 

133.  Unauthorized  Transfers  or  Mergers  Void.  Every  assignment, 
transfer,  lease,  mortgage,  deed  of  trust,  sale,  or  other  disposi- 
tion or  encumbrance  of  the  whole  or  any  part  of  the  franchises, 
plant,  equipment  or  other  property  necessary  or  useful  in  the 
performance  of  its  duty  to  the  public  of  any  public  utility,  or 
any  merger  or  consolidation  thereof,  made  otherwise  than  in 
accordance  with  the  provisions  of  this  act  and  of  the  order  of 
the  commission  authorizing  the  same,  shall  be  void. 

134.  Authority  Not  to  Validate  Lapsed  Franchises.  The  author- 
ization of  the  commission  to  assign,  transfer,  lease,  mortgage, 
sell  or  otherwise  dispose  of  or  encumber  a  franchise,  permit, 
right  or  privilege  under  section  131  of  this  article,  or  to  merge 
or  consolidate  under  section  132  of  this  article,  shall  not  be  con- 
strued to  revive  or  validate  any  expired,  forfeited  or  invalid 
franchise,  permit,  right  or  privilege,  or  to  enlarge  or  add  to  the 
powers  and  privileges  contained  in  the  grant  of  any  franchise, 
permit,  right  or  privilege,  or  to  waive  any  forfeiture. 

135.  Manner  of  Contracting  for  Operation  of  Works.  No  public 
utility  shall  make  any  contract,  agreement  or  arrangement, 
written  or  oral,  with  any  other  public  utility  for  the  operation 
of  its  plant,  equipment  or  other  property,  or  any  part  thereof, 
so  as  to  relieve  such  public  utility  from  the  performance  of  its 
duty  to  the  public,  without  first  having  secured  from  the  com- 
mission an  order  approving  the  same. 

136.^  When  Approval  is  to  be  Given.  Whenever  application  is  made 
to  the  commission  for  its  approval  of — 

(a)  The  assignment,  transfer,  lease,  mortgage,  granting 
in  trust,  sale,  disposal  or  encimibrance  of  any  property  of  a 
public  utility; 

(b)  Any  merger  or  consolidation; 

(c)  Any  contract,  agreement  or  arrangement  for  the  op- 
eration of  the  plant,  equipment  or  other  property  of  a  public 
utility — 

The   commission   shall   withhold  its   approval  if  it  finds  that 

>  Numbers  137  to  150,  inclusive,  are  not  assigned  to  sections. 

38 


the  exercise  of  such  privilege  is  inconsistent  with  the  public 
interest  or  detrimental  thereto.  The  commission  shall  make 
such  order  in  the  premises  as  it  may  deem  proper  and  may  at- 
tach such  terms  and  conditions  to  the  exercise  of  the  privilege 
authorized  as  it  may  deem  reasonable  and  proper. 


ARTICLE   VI. 
RATES. 

(a)     Requisites  of  Lawful  Rates. 

151.  Reasonable  Rates,  Rules  and  Regulations.  All  rates  shall  be 
just  and  reasonable,  and  all  unjust  and  unreasonable  rates  are 
prohibited. 

152.  Discrimination  Prohibited.  No  public  utility  shall  directly  or 
indirectly,  by  any  device  whatsoever,  or  in  any  wise,  charge, 
demand,  collect  or  receive  from  any  person  a  greater  or  less  or 
different  compensation  for  any  service  rendered  or  to  be  rendered 
by  such  public  utility  than  is  charged,  demanded,  collected  or 
received  by  such  public  utility  from  any  other  person  for  a  like 
and  contemporaneous  service  under  substantially  similar  circum- 
stances and  conditions. 

153.  Departure  from  Published  Schedules.  No  public  utility  shall 
directly  or  indirectly,  by  any  device  whatsoever,  or  in  any  wise, 
charge,  demand,  collect  or  receive  from  any  person  a  greater 
or  less  or  different  compensation  for  any  service  rendered  or  to 
be  rendered  by  such  public  utility  than  that  prescribed  in  the 
schedules  of  such  public  utility  then  filed  and  published  in  the 
manner  provided  in  this  act  nor  shall  any  person  receive  or 
accept  any  service  from  a  public  utility  for  a  compensation 
greater,  less  or  in  any  way  different  from  that  prescribed  in 
such  schedules. 

154.  Furnishing  Part  of  Facilities.  No  public  utility  shall  demand, 
charge,  collect  or  receive  from  any  person  less  compensation  for 
any  service  rendered  or  to  be  rendered  by  such  public  utility 
in  consideration  of  the  furnishing  by  said  person  of  any  part  of 
the  facilities  incident  to  such  service;  provided,  nothing  herein 
shall  be  construed  as  prohibiting  any  public  utility  from  renting 
any  facilities  incident  to  service,  and  paying  a  reasonable  rental 
therefor. 

39 


156.  Undue  Preference  or  Advantage  Prohibited.  No  public  utility 
as  to  rates  shall  make  or  grant  any  undue  or  unreasonable 
preference  or  advantage  to  any  person,  locality  or  particular 
description  of  service,  or  subject  any  person,  locality  or  par- 
ticular description  of  service  to  any  undue  or  unreasonable 
prejudice  or  disadvantage. 

156.  Service  at  Reduced  Rates.  Nothing  in  this  act  shall  prohibit 
any  railroad  from  furnishing  free  or  reduced  rate  transporta- 
tion of  the  person  or  of  property  over  its  line,  to  officers, 
attorneys,  surgeons,  directors  or  employes  of  such  railroad,  or 
dependent  members  of  their  families,  or  to  former  employes  of 
such  railroad  or  dependent  members  of  their  families  where  such 
employes  are  pensioned,  or  have  become  disabled  in  the  service 
of  such  carrier  or  are  unable  from  physical  disqualification  to 
continue  in  such  service;  nor  prohibit  the  exchange  of  transporta- 
tion of  the  person  or  of  property  by  such  railroad  with  officers, 
attorneys,  surgeons,  directors  or  employes  of  other  railroads;  nor 
prohibit  any  telephone  or  telegraph  company  from  furnishing 
service  free  or  at  reduced  rates  to  officers,  attorneys,  surgeons, 
directors  or  employes  of  such  telephone  or  telegraph  companies 
or  of  other  telephone  or  telegraph  companies  when  service  is 
required  by  such  officers,  attorneys,  surgeons,  directors  or  em- 
ployes in  the  performance  of  their  duties;  nor  prohibit  tele- 
phone, telegraph  and  express  companies  from  entering  into  con- 
tracts with  railroads  for  the  exchange  of  services;  provided, 
that  no  service  of  any  kind  shall  be  furnished  free  or  at  reduced 
rates  by  any  public  utility,  or  jointly  by  any  public  utilities, 
to  any  candidate  for  or  incumbent  of  any  office  or  position 
under  the  constitution  or  laws  of  this  state  or  under  the  ordi- 
nances of  any  municipality  thereof. 

(b)     Establishment  and  Change  of  Rates. 

157.  Establishment  of  Rates  by  Utility.  Every  public  utility  shall 
establish,  observe  and  enforce  just  and  reasonable  rates. 

158.  Commission  May  Suspend  Schedules.  To  enable  it  to  make 
such  an  investigation  as  in  its  opinion  the  public  interest  requires, 
the  commission,  at  its  discretion,  for  a  period  not  exceeding  three 
months,  may  suspend  the  operation  of  any  rate  filed  with  the 
commission  under  the  provisions  of  this  article  in  substitution 
of  any  rate  then  lawfully  in  effect.  Unless  as  a  result  of  its 
investigation  the  commission  otherwise  orders  before  the  ter- 
mination of  such  period  of  three  months,  such  rate  shall  there- 

40 


upon  become  effective.  The  commission  may  make  any  order 
in  the  premises  which  it  is  authorized  by  any  of  the  provisions 
of  this  act  to  make  in  an  investigation  on  complaint  or  on 
its  own  motion  without  complaint. 

159.  Establishment  of  Joint  Rates.  After  hearing  on  complaint,  or 
on  its  own  motion  without  complaint,  the  commission  may  estab- 
lish joint  services  to  be  participated  in  by  two  or  more  public 
utilities  and  may  ascertain,  determine  and  fix  for  such  services 
just  and  reasonable  rates,  which  shall  be  charged,  enforced,  col- 
lected and  observed  by  such  public  utilities. 

.160.  Division  of  Joint  Rates.  Whenever  the  public  utilities  involved 
shall  fail  to  agree  among  themselves  upon  the  apportionment  or 
division  of  any  joint  rate  established  by  the  commission  or 
ordered  by  the  commission  substituted  for  any  joint  rate  found 
to  violate  any  provision  of  this  act,  the  commission  may  issue 
a  supplemental  order  declaring  the  apportionment  or  division 
of  such  joint  rate. 

161.  Automatic  Adjustment  of  Charges.  Any  public  utility  may 
enter  into  an  arrangement  for  a  fixed  period,  not  to  exceed  five 
years,  for  the  automatic  adjustment  of  charges  or  character 
of  services  performed  in  relation  to  the  profits  to  be  realized  by 
such  public  utility,  provided,  that  a  schedule  of  such  automatic 
adjustment  of  charges  or  services  shall  first  have  been  approved 
by  the  commission. 

162.  Interstate  Rates.  The  commission  may  investigate  all  existing 
or  proposed  interstate  rates,  where  any  act  under  such  rates 
shall  or  may  take  place  within  this  state.  When  such  rates  are 
in  the  opinion  of  the  commission  unjust,  unreasonable,  unjustly 
discriminatory,  unduly  preferential  or  otherwise  or  in  any  respect 
in  violation  of  the  provisions  of  the  act  to  regulate  commerce  or 
of  any  other  act  of  congress  or  in  conflict  with  the  rules  and 
orders  of  the  interstate  commerce  commission  or  of  any  other 
department  of  the  federal  government,  the  commission  may 
apply  for  relief  by  petition  or  otherwise  to  the  interstate  com- 
merce commission  or  to  any  other  department  of  the  federal 
government  or  to  any  court  of  competent  jurisdiction. 

163.  Emergency  Rates.  The  commission  shall  have  power,  when 
deemed  by  it  necessary  to  prevent  injury  to  the  business  or  inter- 
ests of  the  public  or  of  any  public  utility  in  this  state,  in  case  of 
any  emergency  to  be  judged  of  by  the  commission,  temporarily  to 

41 


alter,  amend  or  suspend  without  a  public  hearing  any  one  or 
more  of  the  rates  of  any  public  utility  in  the  state;  such  al- 
teration, amendment  or  suspension  shall  be  effective  not  longer 
than  30  days  and  shall  not  be  renewed  nor  extended  without  a 
hearing  and  investigation  after  reasonable  notice  to  the  public 
utility  affected  thereby. 

(c)      Publicity. 

164.  Filing  of  Schedules.  Within  a  time  to  be  fixed  by  the  commis- 
sion, every  public  utility  shall  file  with  the  commission  schedules 
showing  all  rates  for  every  service  rendered  or  to  be  rendered  by  it. 

165.  Filing  of  Joint  Schedules.  Where  two  or  more  public  utilities 
are  engaged  in  performing  joint  service,  schedules  of  the  rates 
for  such  joint  service  shall  be  filed  with  the  commission  by  one  of 
such  public  utilities;  and  each  of  the  public  utilities  party  to  such 
joint  service,  other  than  the  one  filing  such  schedules,  shall  file 
with  the  commission  such  evidence  of  concurrence  therein,  or 
acceptance  thereof,  as  may  be  required  or  approved  by  the  com- 
mission. 

166.  Posting  of  Schedules.  Copies,  for  the  use  of  the  public,  of  all 
such  schedules  as  are  required  by  this  act  to  be  filed  with  the  com- 
mission, shall  be  posted  in  each  public  office,  not  including 
public  pay  stations  of  telephone  utilities,  of  every  public  utility 
issuing  or  participating  in  such  schedules,  in  such  place  as 
to  be  accessible  to  the  public  and  conveniently  inspected,  30 
days  before  they  are  to  take  effect,  unless  a  shorter  time  is  per- 
mitted by  the  commission;  provided,  that  in  lieu  of  posting 
its  entire  schedules  at  each  office,  any  public  utility  may  file  and 
keep  posted  at  each  office  schedules  of  such  rates  as  on  applica- 
tion the  commission  shall  determine  to  be  required  in  the  public 
interest. 

167.  Changes  in  Schedules.  All  changes  made  in  any  rate  of  any 
public  utility  shall  be  filed  with  the  commission  and  posted  for 
the  use  of  the  public  in  the  manner  herein  prescribed  for  the  fil- 
ing and  posting  of  schedules. 

168.  Form  of  Schedules.  The  commission  may  determine  and  pre- 
scribe the  form  in  which  the  schedules  required  by  this  act  to  be 
filed  with  the  commission  and  to  be  kept  open  to  public  inspec- 
tion, and  all  changes  therein,  shall  be  prepared  and  arranged,  and 
may  change  the  form  from  time  to  time  if  it  shall  be  found  expe- 
dient;  provided,  however,  that  the  commission  shall  endeavor 

42 


to  have  such  form  or  forms  prescribed  by  it  conform  as  far  as 
practicable  to  any  similar  form  or  forms  prescribed  by  the  inter- 
state commerce  commission. 

169.^  Filing  of  Contracts,  Agreements  and  Arrangements.  Every 
public  utility  shall  file  with  the  commission  copies  of  such  con- 
tracts, agreements  or  arrangements  with  other  public  utilities  to 
which  it  may  be  a  party  as  the  commission  may  designate,  and 
every  public  utility  when  and  as  required  shall  exhibit  to  the 
commission  any  contract,  agreement  or  arrangement  with  any 
person  or  copies  thereof.  Every  public  utility  shall,  whenever  re- 
quired by  the  commission,  file  with  the  commission  statements  of 
passes,  tickets,  mileage  books  or  franks,  issued  by  such  public 
utility  free  or  at  rates  lower  than  those  open  to  the  public  in 
general,  or  of  other  authorization  of  service  free  or  at  reduced 
rates,  said  statements  to  cover  such  periods  of  time  and  such 
classes  of  service,  and  to  include  such  information  connected 
with  the  issuance  thereof,  as  the  commission  may  prescribe;  pro- 
vided, that  no  contract,  arrangement  or  authorization  of  a 
public  utility  herein  referred  to  shall  be  open  to  or  inspected 
by  the  public  without  a  special  order  of  the  commission  to 
that  effect. 

'  Numbers  170  to  200,  inclusive,  are  not  assigned  to  sections. 


ARTICLE   VII. 
ADEQUACY   AND   SAFETY   OF  SERVICE. 

201.  Service  Required  to  be  Adequate  and  Safe.  The  service  and 
facilities  of  every  public  utility  shall  be  adequate  and  safe  and 
every  service  regulation  shall  be  just  and  reasonable. 

202.  Unjust  Discrimination  in  Service  Prohibited.  It  shall  be  un- 
lawful for  any  public  utility  to  make,  or  to  permit  to  exist,  any 
unjust  discrimination  or  undue  preference  with  respect  to  its 
service,  facilities  or  service  regulations. 

203.  Standards  of  Service.  The  commission  may  prescribe  adequate 
standards  of  service  rendered  or  to  be  rendered  by  any  public 
utility,  and  may  prescribe  regulations  for  the  examination  and 
testing  of  such  service  and  for  the  measurement  thereof. 

204.  Inspection  of  Service  by  Commission.  The  commission  may 
provide  for  the  inspection  of  the  manner  in  which  any  public 
utility  conforms  to  regulations  prescribed  by  the  commission  for 
the  examination  and  testing  of  its  service,  and  for  the  measure- 

43 


ment  thereof,  and  the  commission  may  examine  and  test  the 
service  of  any  public  utility  and  the  measurement  thereof. 

206.  Meter  Accuracy.  The  commission  may  prescribe  rules,  regula- 
tions and  standards  to  secure  the  substantial  accuracy  of  all 
meters  and  appliances  for  measurement,  and  every  public  utility 
is  required  to  comply  therewith. 

206.  Inspection  of  Meter  Accuracy.  The  commission  may  provide 
for  the  inspection  of  the  manner  in  which  any  public  utility 
complies  with  the  rules,  regulations  and  standards  fixed  by  the 
commission  to  secure  the  accuracy  of  all  meters  and  appliances 
for  measurements,  and  the  commission  may  examine  and  test 
any  and  all  meters  and  appliances  for  measurements  under  such 
rules  and  regulations  as  it  may  prescribe,  and  at  all  inspections 
and  tests  made  in  pursuance  of  complaints  representatives  of 
the  public  utility  complained  of  and  of  the  complainant  may 
be  present. 

207.  Measuring  Appliances ;  Testing ;  Fees.  Any  consumer  or  user 
may  have  any  meter  or  appliance  for  measurement  tested  by  the 
commission  upon  payment  of  fees  fixed  by  the  commission.  The 
commission  shall  declare  and  establish  reasonable  fees  to  be  paid 
for  examining  and  testing  such  appliances  on  the  request  of  con- 
stuners  or  users,  the  fee  to  be  paid  by  the  consumer  or  user  at  the 
time  of  his  request,  but  to  be  paid  by  the  public  utility  and  re- 
funded to  the  consumer  or  user  if  the  measuring  appliance 
be  found  unreasonably  defective  or  incorrect  to  the  disadvantage 
of  the  consumer  or  user. 

208.  Standardization  of  Measuring  Instruments.  The  commission 
may  make  such  provisions  as  it  deems  desirable  for  the  calibra- 
tion, checking  or  standardization  to  secure  their  accuracy  of 
measuring  instruments  used  by  any  public  utility  and  in  so 
doing  it  shall  conform  as  closely  as  practicable  to  the  standards 
and  methods  of  standardization  of  the  National  Bureau  of 
Standards. 

209.  Entry  Upon  Premises.  The  commission,  or  its  representatives 
duly  accredited,  shall  have  power  to  enter  upon  any  premises 
occupied  by  any  public  utility  for  the  purpose  of  making  the 
examinations  and  tests  provided  for  in  this  article,  and  to  set  up 
and  use  on  such  premises  any  apparatus  and  appliances  and  oc- 
cupy reasonable  space  therefor. 

210.  Joint  Use  of  Facilities.  Whenever  after  hearing  and  investiga- 
tion the  commission  shall  find  that  public  convenience  and  neces- 

44 


sity  require  the  use  by  one  public  utility  of  the  conduits,  subways, 
tracks,  wires,  poles,  pipes  or  other  property  or  equipment,  or  any 
part  thereof  along  any  street  or  highway,  whether  on,  over  or  un- 
der such  street  or  highway,  belonging  to  another  public  utility,  and 
that  such  use  will  not  prevent  the  owner  or  other  users  thereof 
from  performing  their  public  duties  nor  result  in  serious  injury 
to  such  owner  or  other  users  of  such  conduits,  subways,  tracks, 
wires,  poles,  pipes  or  other  property  or  equipment,  or  in  any 
substantial  detriment  to  the  service,  or  danger  to  the  public  or 
employes,  and  that  such  public  utilities  have  failed  to  agree 
upon  such  use,  or  the  terms  and  conditions  or  compensation  for 
the  same,  the  commission  may  by  order  direct  that  such  use  be 
permitted  and  prescribe  a  reasonable  compensation  and  rea- 
sonable terms  and  conditions  for  such  joint  use. 

211.  Telephone  and  Telegraph  Physical  Connection.  Whenever  after 
hearing  and  investigation  the  commission  shall  determine  that 
public  convenience  and  necessity  require  a  physical  connection 
for  the  establishment  of  a  continuous  line  of  communication  be- 
tween any  two  or  more  public  utilities  for  the  conveyance  of  tele- 
phone or  telegraph  messages,  and  that  such  physical  connection 
will  not  prevent  the  owners  of  any  part  of  such  proposed  continu- 
ous line  of  communication  from  performing  their  public  duties  nor 
result  in  serious  injury  to  such  owners  of  any  part  of  the  proposed 
continuous  line  of  communication,  ths  commission  may  by  order 
ascertain,  determine  and  fix  the  reasonable  terms  and  condi- 
tions of  such  physical  connection,  and  all  rules  and  regulations, 
including  the  charge  that  shall  be  made  to  the  public  for  the 
use  of  such  continuous  line  and  the  division  of  the  charge  be- 
tween such  two  or  more  public  utilities,  and  the  division  or 
apportionment  of  the  cost  of  making  such  physical  connection 
between  such  public  utilities,  and  it  shall  be  the  duty  of  such 
public  utilities  thereafter  to  conform  to  such  order  of  the  com- 
mission. 

212.  Accidents  Reported  to  Commission.  Every  public  utility  shall 
report  to  the  commission,  under  rules  and  regulations  pre- 
scribed by  the  commission  and  harmonizing  in  so  far  as  prac- 
ticable with  those  of  the  interstate  commerce  commission  and 
of  any  other  department  of  this  state,  every  accident  occurring 
upon  the  property  of  any  public  utility  or  directly  or  indirectly 
arising  from  or  connected  with  the  maintenance  or  operation  of 
the  plant,  equipment,  appliances,  apparatus,  property  or  facil- 
ities of  such  public  utility  resulting  in  loss  of  life  or  injury  to 

45 


person  or  property;  provided,  that  whenever  any  accident 
occasions  the  loss  of  life  or  limb  to  any  person,  such  public 
utility  shall  straightway  advise  the  commission  of  the  fact  by 
the  speediest  available  means  of  communication.  No  such  report 
when  filed  with  the  commission  shall  be  open  to  public  inspection 
unless  specially  authorized  by  the  commission. 

213.^  Commission  to  Investigate  Accidents.  The  commission  shall 
investigate  the  cause  of  all  such  accidents  resulting  in  loss  of  life 
or  injury  to  person  or  property  as  in  the  judgment  of  the  com- 
mission require  investigation  by  it,  and  the  commission  shall 
have  power  to  make  such  recommendation  with  respect  thereto 
as  in  its  judgment  may  be  just  and  reasonable. 

I  Numbers  214  to  229,  inclusive,  are  not  assigned  to  sections. 


ARTICLE   VIII. 
REGULATION   OF  ACCOUNTS  AND   REPORTS. 

230.  Application  to  Municipalities.  The  provisions  of  this  article, 
and  all  penalties  provided  in  this  act  for  the  violation  of  such 
provisions  shall  apply  and  are  hereby  made  applicable  to  any 
municipality  which  owns,  leases  or  controls  any  plant,  property 
or  equipment  for  any  of  the  purposes  described  and  specified  in 
paragraph  (a)  of  section  15  of  this  act,  and  the  term  "public 
utility,"  when  used  in  the  provisions  of  this  article  and  in 
other  such  provisions  of  this  act,  shall  mean  and  include 
every  such  municipality.  It  shall  be  the  duty  of  every  such 
municipality,  after  this  act  takes  effect,  to  comply  with  such 
provisions  of  this  act  and  with  any  order  of  the  commission 
made  in  pursuance  thereof. 

231.  Commission  to  Prescribe  Uniform  Accomits.  The  commission 
shall  prescribe,  establish  and  order  a  system  of  accounts  for 
each  public  utility,  which  system  shall  be  uniform  for  all  public 
utilities  of  the  same  kind  and  class,  and  may  make  such  regula- 
tions regarding  the  accounts  and  the  statistics  of  each  public 
utility  for  the  purpose  of  instiring  uniform  and  correct  books  of 
account  and  record,  as  in  the  judgment  of  the  commission  may  be 
necessary  to  carry  out  any  of  the  provisions  of  this  act. 

232.  Commission  May  Classify  Utilities.  The  commission  may 
classify  public  utilities  of  the  same  kind  in  respect  to  the  systen;  of 
accoimts  and  regulations  regarding  accounts  and  statistics,  and 

46 


in  such  classification  shall  consider  the  ability  of  public  utilities 
to  comply  with  its  requirements  as  well  as  the  public  interests 
involved. 

233.  Commission  May  Alter  Requirements.  The  commission  may 
from  time  to  time  alter,  amend  or  repeal  any  system  of  accotmts 
and  any  regulations  regarding  accounts  and  statistics.  Notice 
of  alterations  or  amendments  shall  be  given  to  the  public  utilities 
affected  thereby  at  least  six  months  before  the  beginning  of  a 
fiscal  year. 

234.  Accounts  Kept  in  State.  Every  public  utility  fiunishing  serv- 
ice within  the  state  shall  maintain  an  office  located  in  the  state, 
in  which  shall  be  kept  such  books  of  account  and  such  records  as 
the  commission  shall  require  to  be  kept  in  the  state. 

236.  Depreciation  Reserve  Required.  Every  public  utility  shall 
carry  a  proper  and  adequate  depreciation  account. 

236.  Forms  of  Account  for  Depreciation.  The  commission  shall 
prescribe  rules,  regulations  and  forms  of  accounts  regarding  such 
depreciation  account  which  public  utilities  shall  carry  into  effect. 

237.  Commission  May  Fix  Depreciation  Rates.  The  commission 
may  in  its  discretion  from  time  to  time  ascertain  and  determine 
and  by  order  fix  the  proper  and  adequate  rates  of  depreciation 
on  the  several  classes  of  property  of  each  public  utility. 

238.  Use  of  Depreciation  Reserve.  The  moneys  set  aside  by  a  pubhc 
utility  for  depreciation  shall  be  expended,  until  required  for 
renewals  or  replacements,  only  for  purposes  chargeable  to 
capital  according  to  the  system  of  accotmts  prescribed  by  the 
commission,  for  the  retirement  of  its  obligations  and  for  such  other 
purposes  and  under  such  rules  and  regulations  as  the  com- 
mission may  from  time  to  time  prescribe. 

239.  Provision  for  Impairment  of  Capital.  The  commission,  in  its 
discretion,  whenever  the  circumstances  require,  may  direct  that 
any  public  utility  shall  make  provision  from  income  from  other 
than  capital  sources,  under  the  system  of  accounts  prescribed,  for 
impairment  of  capital  due  to  depreciation  and  other  causes,  which 
impairment  was  not  provided  for  through  charges  against  revenue 
or  otherwise  at  the  time  of  its  occurrence  or  subsequently,  and 
it  shall  be  the  duty  of  such  public  utility  to  comply  with  such 
direction. 

47 


240.  Utilities  to  Conform  to  System,  (a)  Every  public  utility  shall 
keep  its  books,  papers  and  records  accurately  and  faithfully  ac- 
cording to  the  system  of  accounts  and  regulations  prescribed  by 
the  commission,  and  shall  comply  with  all  directions  of  the  com- 
mission relating  thereto.  It  shall  be  unlawful  for  any  public 
utility  to  keep  any  general  ledger  or  balance  sheet  accounts  other 
than  those  prescribed  or  approved  by  the  commission  or  by  the 
interstate  commerce  commission. 

(b)  Every  public  utility  when  required  by  the  commis- 
sion shall  file  with  the  commission  a  certification  by  a  public 
accountant  as  to  the  compliance  by  the  public  utility  with  the 
system  of  accounts  and  regulations  regarding  accounts  and  sta- 
tistics prescribed  by  the  commission.  The  commission,  in  its 
discretion,  may  require  that  the  accountant  employed  by  a 
public  utility  for  such  certification  shall  not  be  a  shareholder, 
officer  or  other  permanent  or  regular  employe  of  such  public 
utility. 

241.  Commission  May  Audit  Accounts.  The  commission  may  pro- 
vide for  the  examination  and  audit  of  all  accounts  of  public 
utilities.  If  it  shall  determine  that  any  expenditures  or  receipts 
have  been  improperly  charged  or  credited  it  may  order  the 
necessary  changes  in  the  accounts. 

242.  Utilities  Required  to  Report  to  Commission.  Every  public 
utility,  when  and  as  required  by  the  commission,  shall  file  with 
the  commission  such  annual,  monthly  or  other  regular  reports, 
or  special  reports,  and  such  other  information  as  the  commission 
may  desire.  When  required  by  the  commission,  such  reports 
and  information  shall  be  certified  under  oath  by  a  duly  author-  . 
ized  officer  having  knowledge  of  the  matters  contained  therein, 
and  the  commission  may  in  addition  thereto  at  its  discretion 
require  a  certification  by  a  public  accountant.  The  commis- 
sion may  at  any  time  require  from  any  public  utility  specific 
answers  to  any  questions  upon  which  it  may  desire  information. 
The  commission  may  in  its  discretion  grant  extensions  of  the 
time  within  which  reports  and  information  are  required  to  be 
filed.  Annual  reports,  however,  shall  be  filed  within  two  months 
after  the  close  of  the  fiscal  year  and  any  extensions  of  such 
period  shall  not  exceed  in  the  aggregate  30  days. 

243.  Commission  To  Prepare  Blank  Forms.  The  commission  shall 
prepare  and  distribute  to  every  public  utility  blank  forms  for 
any  report  or  reports  required  under  this  act. 

48 


244.'  Defective  Reports.  When  any  report  is  erroneous  or  defective 
the  commission  may  require  the  pubHc  utility  to  amend  such 
report  within  a  time  to  be  prescribed  by  the  commission. 

1  Numbers  24s  to  270,  inclusive,  are  not  assigned  to  sections. 

ARTICLE    IX. 
FRANCHISES. 

271.  Future  Franchises  Granted  to  Public  Utilities.  No  license, 
permit,  or  franchise  to  construct,  own  or  operate  any  plant  or 
facility  of  a  public  utility  shall  be  hereafter  granted  or  trans- 
ferred to  any  grantee  or  transferee  other  than  a  corporation 
duly  incorporated  or  licensed  or  permitted  to  do  a  public  utility 
business  under  the  laws  of  this  state,  except  in  case  of  a  person 
claiming  by,  through  or  under  a  valid  mortgage  or  deed  of  trust 
of  any  such  license,  permit  or  franchise  or  a  purchaser  at  a 
judicial  sale;  and  any  such  person  or  purchaser  shall  be'  subject 
to  the  provisions  of  this  act  so  far  as  applicable. 

272.  Certificate  Before  Furnishing  Service.  No  public  utility 
after  this  act  becomes  a  law  shall  furnish  any  new  service  in 
this  state  or  begin  the  construction  of  any  new  plant  or  new 
facility  in  any  street  or  public  place  until  it  shall  have  obtained 
a  certificate  from  the  commission  that  public  convenience  and 
necessity  require  the  furnishing  of  such  new  service  or  the  con- 
struction of  such  new  plant  or  new  facility. 

273.  Exercise  of  Franchises  Previously  Granted.  No  public  utility 
shall  exercise  any  right  or  privilege  in  any  place  or  territory 
under  any  franchise  or  permit  heretofore  granted  but  not  here- 
tofore actually  exercised  in  such  place  or  territory  or  the  exercise 
of  which  therein  has  been  suspended  for  more  than  one  year 
without  first  having  obtained  from  the  commission  a  certificate 
that  public  convenience  and  necessity  require  the  exercise  of 
such  right  or  privilege. 

274.  Certificate  of  Convenience  and  Necessity.  Whenever  after 
hearing  the  commission  determines  that  any  new  construction 
or  the  furnishing  of  any  new  service  by  a  public  utility  will  pro- 
mote the  public  convenience  and  necessity  it  shall  have  the 
power  to  issue  a  certificate  to  that  effect,  and  in  such  certificate 
may  limit  and  define  the  territory  in  which  such  construction 
may  be  made  or  the  area  in  which  such  service  may  be  supplied. 

49 


275.  Authority  Exercised  Within  One  Year.  Unless  exercised 
within  a  period  designated  by  the  commission  but  not  exceeding 
one  year  from  the  grant  thereof,  exclusive  of  any  delay  due  to 
the  order  of  any  court  or  to  failure  to  obtain  any  grant  or  consent, 
authority  conferred  by  a  certificate  of  convenience  and  necessity 
issued  by  the  commission  shall  be  null  and  void. 

276.  Franchises  Subject  to  Regulation  by  Commission.  Every 
license;  permit  or  franchise,  hereafter  granted  to  any  public 
utility  by  the  state  or  by  any  municipality  and  all  future  con- 
tracts, ordinances,  rules,  regulations  and  orders  entered  into 
or  made  by  any  municipality  relating  to  the  use  or  enjoyment  of 
rights  and  franchises  granted  to  any  public  utility,  shall  be  sub- 
ject to  the  exercise  by  the  commission  of  any  and  all  of  the  powers 
of  regulation  provided  for  in  this  act. 

277.  Provisions  and  Duration  of  Future  Grants.  Every  license 
permit  or  franchise  hereafter  granted  to  a  public  utility  by  a 
municipality  shall  be  so  granted  subject  to  the  provisions  of  this 
act  and  to  the  authority  of  the  commission  to  regulate  and 
supervise  such  public  utility  as  in  this  act  provided;  and  every 
such  license,  permit  or  franchise  which  does  not  provide  for  the 
ultimate  acquisition  of  the  plant  or  facility  by  the  municipality 
shall  be  not  limited  in  time  but  shall  continue  in  force  until  such 
time  as  the  municipality  shall  exercise  its  right  to  acquire,  as 
provided  in  this  act,  or  until  it  shall  be  otherwise  terminated 
according  to  law. 

278.  Consent  to  Future  Purchase;  New  Franchise.  Any  public 
utility  rendering,  or  entitled  to  render,  service  in  any  munic- 
ipality under  a  license,  permit  or  franchise  granted  before  this 
act  takes  effect  may  file  with  the  commission  and  with  such 
municipality  its  consent  to  a  future  purchase,  taking  and  oper- 
ation by  a  municipality  in  accordance  with  the  provisions  of  this 
act  of  its  property  acquired,  constructed  or  operated  in  pur- 
suance of  such  license,  permit  or  franchise  and  actually  used  and 
useful  for  the  convenience  of  the  public.  By  the  act  of  filing 
such  consent  the  public  utility  may  have  and  receive  a  franchise 
subject  to  the  provisions  of  this  act  and  to  the  terms  and  condi- 
tions of  any  valid  contract  between  the  public  utility  and  the 
municipality  to  furnish  service  in  the  same  municipality  area 
or  territory  of  the  kind  or  class  which  it  is  then  lawfully  fur- 
nishing under  such  license,  permit  or  franchise  granted  before 
this  act  takes  effect.     A  franchise  so  obtained  however,  shall 

5° 


be  subject  to  alterations,  amendment  or  repeal  by  act  of  the 
legislature. 

279.  Future  Grants;  Acceptance:  Implied  Consent.  Any  public 
utility  accepting  or  operating  under  any  license,  permit  or 
franchise  hereafter  granted  shall,  by  acceptance  of  any  such 
license,  permit  or  franchise,  be  deemed  to  have  consented  to  a 
future  purchase,  taking  and  operation  by  a  municipality  in  ac- 
cordance with  the  provisions  of  this  act  of  its  property  acquired, 
constructed  or  operated  in  pursuance  of  such  license,  permit  or 
franchise  and  actually  used  and  useful  for  the  convenience  of 
the  public,  for  the  just  compensation  and  under  the  terms  and 
conditions  of  piu-chase  and  sale  determined  by  the  commission, 
and  shall  thereby  be  deemed  to  have  waived  the  right  of  requiring 
the  necessity  of  such  taking  to  be  established  by  the  verdict  of 
a  jury,  and  to  have  waived  all  other  remedies  and  rights  rela- 
tive to  condemnation,  except  such  rights  and  remedies  as  are 
provided  in  this  act. 

280.  Municipalities ;  Powers ;  Acquiring  and  Operating  Plants,     (a) 

Any  municipality  shall  have  the  power,  subject  to  the  provi- 
sions of  this  act,  to  acquire  or  to  construct  and  to  operate  a 
public  utility  plant,  property  or  facility  for  any  of  the  purposes 
described  in  paragraph  (a)  of  section  15  of  this  act,  herein- 
after termed  a  municipal  plant. 

(b)  Any  municipality  shall  have  the  power,  subject  to  the 
provisions  of  this  act,  to  purchase  by  an  agreement  with  any 
public  utility  and  to  operate  any  part  of  any  public  utility  plant, 
property  or  facility,  provided  that  such  purchase  and  the  terms 
thereof  shall  be  approved  by  the  commission  after  a  public 
hearing. 

(c)  Any  municipality  shall  have  the  power,  subject  to  the  pro- 
visions of  this  act,  to  acquire  by  condemnation  and  to  operate  the 
property  of  any  public  utility  actually  used  and  useful  for  the 
convenience  of  the  public  then  operating  imder  a  license,  permit 
or  franchise  existing  at  the  time  this  act  takes  eflfect,  or  operating 
in  such  municipality  without  any  permit  or  franchise. 

(d)  Any  municipality  shall  have  the  power,  subject  to  the  pro- 
visions of  this  act,  to  acquire  by  purchase  as  provided  in  this  act, 
and  to  operate  the  property  actually  used  and  useftil  for  the 
convenience  of  the  public  of  any  public  utility  which  has  con- 
sented to  the  purchase,  taking  and  operation  of  such  property 
by  a  municipality. 

51 


(e)  No  municipality  shall  hereafter  enter  upon  the  original 
construction  of  any  municipal  plant  for  a  public  utility  service 
where  there  is  in  operation  in  such  municipality  a  public  utility 
engaged  in  the  same  kind  of  service  without  first  obtaining  from  the 
commission  a  declaration,  after  a  public  hearing,  that  public  con- 
venience and  necessity  require  the  service  of  such  municipal  plant. 

(f)  Any  municipality  which  has  acquired  or  constructed 
any  public  utility  plant,  property  or  facility  shall  have  the  power 
to  contract  with  a  public  utility  for  the  operation  of  any  part 
or  the  whole  thereof,  subject  to  the  provisions  of  this  act  and  to 
the  exercise  by  the  commission  in  respect  to  such  public  utility 
of  the  powers  of  regulation  and  supervision  conferred  upon  it 
by  this  act. 

281.  Action  by  Municipalities  to  Acquire  Plants.  Any  municipality 
may  determine  to  acquire  the  propgrty  of  a  public  utility,  as 
authorized  under  the  provisions  of  this  act,  by  a  vote  of  a 
majority  of  the  electors  voting  thereon  at  any  general,  munic- 
ipal or  special  election  at  which  the  question  of  the  purchase 
of  such  property  shall  have  been  submitted.  In  the  event  that 
such  property  shall  be  operated  at  the  time  of  such  determina- 
tion imder  a  license,  permit  or  franchise  now  existing  and  the 
public  utility  shall  not  have  agreed  to  such  purchase  by  the 
municipality,  such  municipality  shall  bring  an  action  in  the 
court  of  record  of  general  jurisdiction  of  the  county  in  which 
such  municipality  is  situated  against  the  public  utility  as 
defendant  praying  the  court  for  an  adjudication  as  to  the 
necessity  of  such  taking  by  the  municipality.  The  public 
utility  shall  serve  and  file  its  answer  to  such  complaint  within 
30  days  after  the  service  thereof,  whereupon  such  action  shall 
be  at  issue  and  stand  ready  for  trial  upon  30  days'  notice  by 
either  party.  Unless  the  parties  thereto  waive  a  jury,  the 
question  as  to  the  necessity  of  the  taking  of  such  property  by 
the  municipality  shall  be  submitted  to  a  jury. 

282.  Property  Taken;  Compensation.  Any  municipality  purchasing 
the  plant,  property  or  facilities  of  a  public  utility  as  aforesaid 
shall  purchase  the  whole  of  such  plant,  property  or  facilities 
within  its  limits  used  and  useful  for  the  convenience  of  the 
public  in  the  production  of  the  same  kind  of  service  as  that  pro- 
posed to  be  established  by  the  municipality. 

283.  Municipality  May  Serve  Outside  Limits.  Where  the  major 
part  of  the  plant,  property  or  facilities  of  such  utility  lies  within 
the  limits  of  the  municipality  ptirchasing  the  same  but  other 

52 


parts  of  such  plant,  property  or  facilities  lie  without  its  limits, 
the  municipality  may  purchase  the  whole  or  such  parts  of  such 
plant,  property  or  facilities  outside  of  its  limits  as  the  com- 
mission, taking  into  consideration  the  rights  of  the  public  utility 
and  of  the  other  municipalities  in  which  it  operates,  may,  after 
notice  to  all  parties  interested  and  a  public  hearing,  determine 
is  in  the  public  interest  and  is  necessary  for  the  proper  carry- 
ing on  of  its  business. 

284.  Status  of  Municipal  Plant  in  another  Municipality.  A  mu- 
nicipality which  has  acquired  as  hereinbefore  provided  the  plant, 
property  or  facilities  of  a  public  utility  in  any  other  municipality 
may  thereafter  operate  therein  as  a  public  utility  with  the  same 
rights  and  franchises  and  subject  to  the  same  limitations  and 
obligations  as  the  utility  from  which  such  outlying  plant  was 
purchased  would  have  had,  or  to  which  it  would  have  been  sub- 
ject, had  such  purchase  not  been  made.  If  the  outlying  mu- 
nicipality shall  itself  vote  to  establish  a  municipal  plant,  all  the 
provisions  of  this  act  shall  be  binding  as  to  said  pmrchase. 

285.  Compensation   to   be   Determined   by    Commission;   Notice 

Whenever  the  commission  shall  have  been  notified  by  either  party 
that  a  municipality  has  decided  to  purchase  the  plant,  property 
or  facilities  of  a  public  utility  and  that  the  parties  to  such  pur- 
chase and  sale  have  been  unable  to  agree  on  just  compensation 
to  be  paid  and  received,  the  commission  shall  proceed  to  set  a 
time  and  place  for  a  public  hearing  upon  the  matters  of  the  just 
compensation  to  be  paid  for  the  taking  of  the  property  of  such 
public  utility  and  of  all  other  terms  and  conditions  of  the  pur- 
chase and  sale,  and  shall  give  to  the  mimicipality  and  the  public 
utility  interested  not  less  than  30  days'  notice  of  the  time  and 
place  when  and  where  such  hearing  will  be  held  and  such  matters 
considered  and  determined,  and  shall  give  like  notice  to  all  mort- 
gagees, trustees,  lienors,  and  all  other  persons  having  or  claiming 
to  have  any  interest  in  such  public  utility,  by  publication  of  such 
notice  once  a  week  for  not  l<iss  than  three  successive  weeks  in  at 
least  one  newspaper  of  general  circulation  and  published  in  the 
county  in  which  the  property  of  such  public  utility  to  be  taken  is 
located,  which  publication  shall  be  caused  to  be  made  by  the 
municipality.  Within  a  reasonable  time,  not  exceeding  one 
year,  after  the  time  iixed  for  such  hearing  in  such  notice,  the 
commission  shall,  by  order,  fix  and  determine  and  certify  to  the 
municipal  council,  to  the  public  utility  and  to  any  mortgagee,  trus- 
tee, lienor  or  other  creditor  appearing  upon  such  hearing,  the  just 

53 


compensation  to  be  paid  for  the  taking  of  the  property  of  such 
public  utility  actually  used  and  useful  for  the  convenience  of  the 
public  and  all  other  terms  and  conditions  of  sale  and  purchase 
which  it  shall  ascertain  to  be  reasonable.  The  compensation 
and  other  terms  and  conditions  of  sale  and  purchase  so  certified 
shall  constitute  the  compensation  and  terms  and  conditions  to  be 
paid,  followed  and  observed  in  the  purchase  of  such  plant  from 
such  public  utility.  Upon  the  filing, of  such  certificate  with  the 
clerk  of  such  municipality  and  upon  compliance  with  the  terms 
and  conditions  of  sale  so  certified,  the  exclusive  use  of  the 
property  taken  shall  vest  in  such  municipality. 

286.  Appeal.  Any  public  utility  or  the  municipality  or  any  mort- 
gagee, lienor  or  other  creditor  of  the  public  utility,  being  dis- 
satisfied with  such  order,  may  within  30  days  commence  and 
prosecute  an  action  in  the  court  of  record  of  general  jurisdic- 
tion of  the  county  in  which  the  piu'chasing  municipality  is 
located  to  alter  or  amend  such  order  or  any  part  thereof. 

287.  If  Decision  Affirmed.  If  the  court  shall  not  adjudge  that  the 
compensation  fixed  and  determined  in  such  order  is  unjust 
or  that  some  of  the  terms  or  conditions  fixed  and  determined 
therein  are  in  some  particulars  unreasonable,  the  compensation, 
terms  and  conditions  fixed  in  said  order  shall  be  the  compensa- 
tion, terms  and  conditions  to  be  paid,  followed  and  observed 
in  the  purchase  of  said  plant  from  such  public  utility. 

288.  If  Decision  for  Utility.  If  the  court  shall  adjudge  that  such 
compensation  is  imjust  or  that  some  of  such  terms  or  condi- 
tions are  unreasonable,  the  court  shall  remand  the  same  to  the 
commission  with  such  findings  of  fact  and  conclusions  of  law 
as  shall  set  forth  in  detail  the  reasons  for  such  judgment  and 
the  specific  particulars  in  which  such  order  of  the  commission 
is  adjudged  to  be  unreasonable  or  unjust. 

289.^  Reconsideration  of  Compensation.  If  the  compensation  fixed 
by  the  previous  order  of  the  commission  be  adjudged  to  be 
unjust  or  the  terms  and  conditions  unreasonable,  the  commission 
shall  forthwith  proceed  to  set  a  re-hearing  for  the  re-determina- 
tion of  such  compensation  and  terms  and  conditions  as  in  the 
first  instance,  subject  to  the  provisions  of  sections  286  to  288 
hereof. 

^  Numbers  2go  to  300,  inclusive,  are  not  assigned  to  sections. 


54 


ARTICLE  X. 
COMMISSION   PROCEDURE  AND  PRACTICE. 

301.  Rules  of  Practice.  The  commission  may  from  time  to  time 
make,  publish  or  amend  niles  for  the  order  and  regulation  of  all 
proceedings  and  investigations  which  under  the  provisions  of 
this  act  it  is  authorized  to  conduct. 

302.  Complaint  Served  on  Utility  Complained  of.  Whenever  com- 
plaint has  been  made  to  the  commission,  as  elsewhere  in  this  act 
provided  for,  the  commission  may  serve  on  the  person  com- 
plained of  a  copy  of  such  complaint,  and  may  proceed  to  in- 
vestigate the  matters  complained  of. 

303.  Hearing  and  Investigation.  Whenever  the  commission  shall 
determine  to  conduct  an  investigation  of  any  rate  or  of  any 
service,  either  with  or  without  complaint  as  in  this  act  pro- 
vided for,  it  shall  fix  a  time  and  place  for  public  hearing  of  the 
matters  under  investigation,  and  shall  notify  the  complainant, 
the  person  complained  of,  and  such  other  persons  as  it  may  deem 
proper,  of  such  time  and  place  of  hearing,  at  least  ten  days  in 
advance  thereof.  At  the  hearing  held  pursuant  to  such  notice, 
the  commission  may  take  such  testimony  as  may  be  offered  or  as 
it  may  desire,  and  may  make  such  other  or  fiurther  investigation 
as  in  its  opinion  is  desirable. 

304.  Service  on  Public  Utilities.  Service  on  any  person  of  any 
notice  or  order  or  other  matter  tmder  the  provisions  of  this 
act  may  be  made  by  depositing  in  the  mail  such  notice  or  order 
or  other  matter  or  a  certified  copy  thereof,  directed  to  the  public 
utility  at  the  principal  office  of  the  public  utility  in  this  state. 

305.  Separate  Hearings.  When  complaint  is  made  of  more  than  one 
matter  or  thing  the  commission  may  order  separate  hearings  there- 
on and  may  hear  and  determine  the  several  matters  complained 
of  separately  and  at  such  times  as  it  may  prescribe.  All  hear- 
ings conducted  by  the  commission  shall  be  open  to  the  public. 
In  any  hearing,  proceeding  or  investigation  conducted  by  the 
commission,  any  party  may  be  heard  in  person  or  by  attorney. 

306.  Power  to  Administer  Oaths  and  Subpoena  Witnesses;  Con- 
tempt. The  commission  and  each  of  the  commissioners,  for 
the  purposes  mentioned  in  this  act,  may  administer  oaths,  certify 
to  official  acts,  issue  subpoenas,  compel  the  attendance  of  wit- 

55 


nesses  and  the  production  of  papers,  books,  accounts,  documents 
and  testimony.  In  case  of  failure  on  the  part  of  any  person 
or  persons  to  comply  with  any  order  of  the  commission,  or  any 
commissioner,  or  any  subpoena.,  or  of  the  refusal  of  any  witness 
to  testify  to  any  matter  regarding  which  he  may  be  interrogated 
lawfully,  it  shall  be  the  duty  of  the  court  of  record  of  general  juris- 
diction of  any  county,  or  the  judge  thereof,  on  application  of  the 
commission  or  of  a  commissioner,  to  compel  obedience  by  attach- 
ment proceedings  for  contempt,  as  in  the  case  of  disobedience  of 
the  requirements  of  a  subpoena  issued  from  such  court  or  a  refusal 
to  testify  therein. 

307.  Attendance  of  Witnesses.  Any  party  to  a  proceeding  before  the 
commission  with  the  consent  of  the  commission  shall  have  process 
to  enforce  the  attendance  of  witnesses  and  the  production  of 
books,  papers,  maps,  contracts,  reports  and  records  of  every  de- 
scription affecting  the  subject  matter  of  the  investigation. 

308.  Compensation  of  Witnesses.  Witnesses  who  are  summoned 
before  the  commission  shall  be  paid  the  same  fees  and  mileage  that 
are  paid  to  witnesses  in  the  courts  of  record  of  general  jurisdiction 
in  this  state.  Witnesses  whose  depositions  are  taken  pursuant 
to  the  provisions  of  this  act  and  the  magistrate  or  other  officer 
taking  the  same  shall  be  entitled  severally  to  the  same  fees  as  are 
paid  for  like  services  in  courts  of  record  of  original  jurisdiction  in 

•  this  state. 

309.  Immunity  of  Witnesses.  No  person  shall  be  excused  from  testi- 
fying or  from  producing  books,  accounts  and  papers  in  any  inves- 
tigation or  inquiry  by  or  hearing  before  the  commission  or  any 
commissioner  when  ordered  so  to  do,  based  upon  or  growing  out 
of  any  violation  of  the  provisions  of  this  act,  on  the  ground  or 
for  the  reason  that  the  testimony  or  evidence,  documentary  or 
otherwise,  required  of  him,  may  tend  to  incriminate  him  or 
subject  him  to  penalty  or  forfeiture;  but  no  person  having  so 
testified  shall  be  prosecuted  or  subjected  to  any  penalty  or  for- 
feiture for  or  on  account  of  any  transaction,  matter  or  thing 
concerning  which  he  may  have  testified  or  produced  any  documen- 
tary evidence;  provided,  that  no  person  so  testifying  shall  be  ex- 
empt from  prosecution  or  punishment  for  perjury  in  so  testifying ; 
and  provided,  further,  that  any  person  may  expressly  waive  the 
protection  of  this  section. 

310.  Depositions.  The  commission,  or  with  the  consent  of  the  com- 
mission any  party  to  any  proceeding  before  the  commission,  may,. 

56 


in  any  investigation,  cause  the  depositions  of  witnesses  residing 
within  or  without  the  state  to  be  taken  in  the  manner  prescribed 
by  law  for  like  depositions  in  civil  actions  in  the  courts  of  record 
of  general  jurisdiction  in  this  state. 

311.  Rules  of  Evidence.  In  the  conduct  of  all  hearings  and  investi- 
gations, the  commission  shall  not  be  bound  by  the  technical  rules 
of  evidence.  No  informality  of  any  proceeding  or  in  the  manner 
of  taking  testimony  before  the  commission  or  any  commissioner 
or  any  agent  of  the  commission  shall  invalidate  any  order,  deci- 
sion, rule  or  regulation  made,  approved  or  confirmed  by  the  com- 
mission, 

312.  Dismissal  of  Complaint;   Absence  of  Damage  to  Complainant. 

No  complaint  shall  at  any  time  be  dismissed  solely  because  of 
absence  of  direct  damage  to  the  complainant. 

313.  Record  of  Proceedings.  The  minutes  of  all  hearings  had  before 
or  by  the  commission  shall  be  kept,  and  shall  include  the  names 
of  all  persons  who  appeared  and  witnesses  who  were  sworn,  with 
the  identification  of  any  documentary  evidence  produced. 

314.  Transcripts  of  Testimony.  Parties  to  any  proceeding  before  the 
commission  shall  be  entitled  to  transcripts  of  the  testimony 
taken  in  such  proceedings,  subject  to  such  reasonable  rules  and 
regulations  as  the  commission  may  prescribe. 

316.  Opinions  and  Orders  Published.  Every  order  of  the  commis- 
sion shall  be  in  writing  and  in  cases  of  importance  may  be  ac- 
companied by  an  opinion  setting  forth  in  brief  the  facts  on  which 
the  commission  has  based  its  order.  The  commission  shall  pro- 
vide for  the  publication  from  time  to  time  and  for  the  assem- 
bling of  its  opinions  and  orders. 

316.  Effective  Date  of  Orders.  Unless  a  different  time  be  prescribed 
by  the  commission,  every  order  of  the  commission  shall  be- 
effective  30  days  after  the  service  thereof. 

317.  Service  on  Parties.  Straightway  after  the  entry  of  record  of 
any  order  of  the  commission,  notice  thereof  shall  be  given  ta 
every  party  required  to  obey  the  order. 

318.  Modification  of  Orders.  At  any  time  after  the  entry  thereof 
the  commission  in  the  manner  provided  for  the  making  thereof 
may  alter,  amend,  annul  or  otherwise  modify  any  order. 

57 


319.^  Rehearings.  At  any  time  after  an  order  has  been  made  by 
the  commission  any  person  interested  therein  may  apply  for  a 
rehearing  in  respect  to  any  matter  determined  therein  and 
the  commission  shall  grant  and  hold  such  a  rehearing  if  in  its 
judgment  sufficient  reason  therefor  be  made  to  appear,  which 
rehearing  shall  be  subject  to  such  rules  as  the  commission 
may  prescribe.  Application  for  such  a  rehearing  shall  not  excuse 
any  public  utility  or  person  from  complying  with  or  obeying  an 
order  of  the  commission  or  operate  in  any  manner  to  stay  or  post- 
pone the  enforcement  thereof  except  as  the  commission  may  by 
order  direct.  Any  order  of  the  commission  made  after  such 
rehearing  shall  have  the  same  force  and  effect  as  an  original 
order  but  shall  not  affect  any  right  or  the  enforcement  of  any 
right  arising  from  or  by  virtue  of  the  original  order,  except  as 
directed  by  the  commission. 

I  Numbers  320  to  330,  inclusive,  are  not  assigned  to  sections. 


ARTICLE  XI. 
ENFORCEMENT  OF  ACT. 

331.  Commission  May  Begin  Suit.  Whenever  the  commission  shall 
be  of  the  opinion  that  any  public  utility  is  failing  or  omitting, 
or  is  about  to  fail  or  omit,  to  do  any  thing  required  of  it  by  this 
act,  or  by  any  order  of  the  commission,  or  is  doing  any  thing,  or 
about  to  do  any  thing  or  permitting  any  thing,  or  about  to  per- 
mit any  thing  to  be  done,  contrary  to  or  in  violation  of  the  pro- 
visions of  this  act,  or  of  any  order  of  the  commission,  it  may  begin 
and  prosecute  in  any  court  of  competent  jurisdiction  an  appro- 
priate action  at  law  or  in  equity  to  remedy  or  to  prevent  such 
real  or  proposed  violation. 

332.  Venue.  All  provisions  of  the  law  of  this  state  relating  to 
venue  shall  apply  to  proceedings  under  this  act,  and  in  addition 
any  action  at  law  or  in  equity  to  enforce  any  provision  of  this 
act  or  of  any  order  of  the  commission,  or  to  prevent  any  pro- 
posed violation  thereof,  may  be  commenced  in  the  court  of 
record  of  general  jurisdiction  in  such  matters  in  and  for  the 
county  in  which  the  principal  office  of  the  commission  is  lo- 
cated or  in  the  county  where  the  principal  office  in  the  state 
of  the  public  utility  is  located. 

58 


333.  Duty  of  Courts  to  Entertain  Actions.  All  provisions  of  the 
laws  of  this  state  prescribing  the  duties  and  jurisdictions  of  the 
courts  thereof  shall  apply  to  this  act,  and  in  addition  it  shall  be 
the  duty  of  the  court  of  record  of  general  jurisdiction  in  like 
matters  in  the  county  in  which  the  commission  has  its  principal 
office  to  entertain  and  determine  all  actions  commenced  under 
the  provisions  of  section  331  of  this  act,  and  to  enforce  the  pro- 
visions of  this  act,  or  of  any  order  of  the  commission,  by  manda- 
mus, or  by  injunction,  or  by  any  other  appropriate  remedy. 

334.  Commission  May  Order  Reparation.  When  complaint  has 
been  made  to  the  commission  concerning  any  rate  of  any  public 
utility  and  the  commission  has  found  after  investigation  that 
the  public  utility  has  charged  an  excessive  or  unjustly  dis- 
criminatory amount  for  any  service,  the  commission  may  in  its 
discretion  order  that  the  public  utility  make  due  reparation  to 
the  complainant  therefor,  with  interest  at  the  legal  rate  from 
the  date  of  payment  of  such  excessive  or  imjustly  discriminatory 
amount. 

335.  Action  to  Enforce  Order  for  Reparation.  If  a  public  utility  does 
not  comply  with  an  order  of  the  commission  for  the  payment  of 
money  within  the  time  fixed  in  such  order,  the  complainant,  or 
any  person  for  whose  benefit  such  order  was  made,  may  file  in 
any  court  of  competent  jurisdiction  a  petition  setting  forth 
briefly  the  causes  for  which  he  claims  damages  and  the  order  of 
the  commission  in  the  premises.  In  such  action  the  findings 
and  order  of  the  commission  shall  be  prima  facie  evidence  of 
the  facts  therein  stated.  If  the  petitioner  shall  finally  prevail 
he  shall  be  allowed  a  reasonable  attorney's  fee  to  be  taxed  and 
collected  as  a  part  of  the  costs  of  the  action. 

336.  Limitations  upon  Actions  for  Reparation.  All  complaints  for 
the  recovery  of  damages  shall  be  filed  with  the  commission  within 
two  years  from  the  tune  the  service  as  to  which  complaint  is 
made  was  completed  or  performed,  and  not  after,  and  a  peti- 
tion for  the  enforcement  of  an  order  of  the  commission  for  the 
payment  of  money  shall  be  filed  in  the  proper  court  within  one 
year  from  the  date  of  the  order  and  not  after. 

337.  Refund  of  Amounts  Collected  in  Excess  of  Schedule  Rates. 

Whenever  any  public  utility  shall  charge,  collect  or  receive  any 
rate  or  rates  in  excess  of  the  rates  fixed  in  the  schedule  of  charges 

59 


then  in  force,  as  provided  in  this  act,  it  shall  be  the  duty  of  such 
public  utility  straightway  to  refund  to  the  person  paying  such 
excessive  rates  the  difference  between  the  lawful  rates  fixed 
in  such  schedule  and  the  rates  so  charged,  collected  or  received. 

338.  Actions  to  Set  Aside  Orders  of  Commission.  Any  person  in 
interest,  being  dissatisfied  with  any  order  of  the  commission, 
may  commence  an  action  in  the  court  of  record  of  general  juris- 
diction in  such  matters  in  and  for  the  county  in  which  the  com- 
mission has  its  principal  office,  to  vacate  and  set  aside  such 
order  on  the  ground  that  the  commission  lacked  authority  in 
the  premises  or  that  if  enforced  the  order  would  violate  a 
provision,  or  provisions,  of  any  law  of  this  state,  or  of  the 
constitution  of  this  state  or  of  the  United  States.  The 
answer  of  the  commission  to  the  complaint  shall  be  served  and 
filed  within  30  days  after  service  of  the  complaint,  whereupon 
said  action  shall  be  at  issue  and  stand  ready  for  trial  upon 
ten  days'  notice  to  either  party. 

339.  Limitation  on  Appeals  and  Actions  to  Set  Aside.  Every  pro- 
ceeding, action  or  suit  to  set  aside,  vacate  or  annul  any  determi- 
nation or  order  of  the  commission,  or  to  enjoin  the  enforcement 
thereof,  or  to  prevent  in  any  way  such  order  or  determination 
from  becoming  effective,  shall  be  commenced,  and  every  appeal 
to  the  courts  or  right  of  recourse  to  the  courts  shall  be  taken  or 
exercised,  within  30  days  after  the  service  of  a  copy  of  such 
order  or  determination  on  the  public  utility  or  public  utilities 
party  thereto,  and  the  right  to  commence  any  such  action, 
proceeding  or  suit  or  to  take  or  exercise  any  such  appeal  or  right 
of  recourse  to  the  courts  shall  terminate  absolutely  at  the  end  of 
such  30  days  after  such  service. 

340.  New  Evidence  upon  Trial.  If  upon  trial  of  such  action  evidence 
shall  be  introduced  by  the  plaintiff  which  is  found  by  the  court  to 
be  different  from  that  offered  upon  the  hearing  before  the  commis- 
sion, or  additional  thereto,  the  court,  before  proceeding  to  render 
judgment,  unless  the  commission  or  its  attorney  shall  file  a 
consent  in  writing  to  the  contrary,  shall  transmit  a  copy  of 
such  evidence  to  the  commission  and  shall  stay  further  pro- 
ceedings in  such  action  for  such  time  as  the  court  may  by  order  fix 

60 


341.  Reconsideration  by  Commission.  Upon  the  receipt  of  such  evi- 
dence, the  commission  shall  consider  the  same  and  may  alter, 
modify,  amend  or  rescind  its  order  complained  of  in  said  action 
and  shall  report  its  action  thereon  to  said  court  within  ten  days 
from  the  receipt  of  such  evidence. 

342.  Supplemental  Findings ;  Procedure  by  Court.  If  the  commis- 
sion shall  rescind  its  order  complained  of  the  action  shall  be  dis- 
missed; if  it  shall  alter,  modify  or  amend  the  same,  such  altered, 
modified  or  amended  order  shall  take  the  place  of  the  original 
order  complained  of  and  judgment  shall  be  rendered  thereon  as 
though  made  by  the  commission  in  the  first  instance;  if  the  orig- 
inal order  shall  not  be  rescinded  or  changed  by  the  commission, 
judgment  shall  be  rendered  upon  such  original  order. 

343.  Appeal  to  Court  of  Last  Resort.  Either  party  to  said  action, 
within  30  days  after  service  of  a  copy  of  the  order  or  judgment 
of  the  court  of  original  jurisdiction,  may  appeal  to  the  court  of 
last  resort.  Where  an  appeal  is  taken,  the  cause  shall,  on  the 
return  of  the  papers  to  such  court,  be  immediately  placed  on  the 
calendar  of  the  then  pending  term  and  shall  be  assigned  and 
brought  to  a  hearing  in  the  same  manner  as  other  cases  on  such 
calendar. 

344.  Burden  of  Proof.  In  all  trials,  actions  and  proceedings  arising 
under  the  provisions  of  this  act,  or  growing  out  of  the  exercise  of 
the  authority  and  powers  granted  herein  to  the  commission,  the 
burden  of  proof  shall  be  upon  the  party  adverse  to  the  commis- 
sion or  seeking  to  set  aside  any  determination,  requirement,  di- 
rection or  order  of  the  commission,  to  show  that  the  determi- 
nation, requirement,  direction  or  order  of  the  commission  com- 
plained of  is  unlawful  or  violates  a  provision  of  any  law  of  this 
state  or  of  the  constitution  of  this  state  or  of  the  United  States, 
as  the  case  may  be. 

345.  Court  Procedure  and  Officers.  In  all  actions  and  proceedings 
in  court  arising  under  this  act,  all  processes  shall  be  served  and 
the  practice  and  rules  of  evidence  shall  be  the  same  as  in  civil 
actions  or  in  suits  in  equity,  except  as  otherwise  herein  provided. 
Every  sheriff  or  other  officer  empowered  to  execute  civil  process 
shall  execute  any  process  issued  under  the  provisions  of  this  act 
and  shall  receive  such  compensation  therefor  as  may  be  prescribed 
by  law  for  similar  services. 

61 


346.  Injunctions  Issued.  No  injunction  shall  issue  suspending  or 
staying  any  order  of  the  commission,  except  upon  application  to 
the  court  of  record  of  general  jurisdiction  in  such  matters  in  and 
for  the  county  in  which  the  commission  has  its  principal  ojfifice,  or 
the  presiding  judge  thereof,  and  upon  notice  to  the  commission 
and  hearing. 

347.  Injunction  Order  Shall  Specify  Nature  of  Damage.     The  order 

or  decree  of  any  court,  enjoining  the  operation  of  any  order  or 
determination  of  the  commission  or  suspending  the  same,  shall 
contain  a  specific  finding  based  upon  evidence  before  the  court 
and  identified  by  reference  thereto  that  substantial  or  irreparable 
damage  otherwise  would  result  to  the  petitioner,  and  specifying 
the  nature  of  the  damage. 

348.  Rules  of  Procedure.  The  courts  before  which  the  proceedings 
mentioned  herein  may  be  brought  as  hereinbefore  provided  may 
each,  respectively,  from  time  to  time  make  and  publish  or  amend 
and  modify  rules  and  practices  for  the  order  and  regulation  of 
proceedings  before  them  or  appeals  to  them,  including  the  forms 
of  notice  and  service  thereof. 

349.  Expedition  of  Cases.  Any  proceeding  in  any  court  of  this  state, 
directly  affecting  an  order  of  the  commission,  or  to  which  the  com- 
mission is  a  party,  shall  have  preference  over  all  other  civil  pro- 
ceedings pending  in  such  court. 

350.  Violation  of  Act  of  Order  of  Commission;  Forfeiture.  Every 
public  utility  and  all  officers,  agents  and  employes  of  any 
public  utility  shall  obey,  observe  and  comply  with  every  order 
made  by  the  commission  under  authority  of  this  act  so  long 
as  the  same  shall  be  and  remain  in  force.  Any  public  utility 
which  shall  violate  any  provision  of  this  act  or  which  shall  fail, 
omit  or  neglect  to  obey,  observe  or  comply  with  any  order  or 
any  direction  or  requirement  of  the  commission  shall  forfeit 
"to  the  state  not  to  exceed  $5,000  for  each  and  every  offense; 
every  violation  of  any  such  order  or  direction  or  requirement,  or 
of  this  act,  shall  be  a  separate  and  distinct  offense  and  in  case 
of  a  continuing  violation,  every  day's  continuance  thereof  shall 
be  and  be  deemed  to  be  a  separate  and  distinct  offense. 

1  In  some  jurisdictions  it  may  be  preferable  to  define  the  offense  as  a  misdemeanor.  In 
some  such  jurisdictions  the  general  law  may  prescribe  penalties  for  misdemeanors  of  all  kinds. 
In  othef s  it  may  be  desirable  in  this  act  to  prescribe  the  penalties  for  misdemeanors  defined 
herein.  In  such  cases  the  section  after  defining  the  offense  may  read  as  follows:"is  guilty  of 
a  misdemeanor  and  is  punishable  by  a  fine  not  exceeding  f  5,000  for  each  offense." 

62 


351.    Violation  of  Act  or   Order  of   Commission;    Misdemeanor. 

Every  officer,  agent  or  employe  of  any  public  utility  who  shall 
violate,  or  who  shall  procure,  aid  or  abet  any  violation  by  any 
such  public  utility  of  any  provision  of  this  act,  or  who  shall  fail 
to  obey,  observe  and  comply  with  any  order  of  the  commission 
or  any  provision  of  an  order  of  the  commission,  or  who  shall 
procure,  aid  or  abet  any  such  public  utility  in  its  failure  to  obey, 
observe  and  comply  with  any  such  order  or  provision,  shall  be 
guilty  of  a  misdemeanor/ 

1  In  some  jurisdictions  it  may  be  desirable  to  prescribe  the  penalty  for  committing 
a  misdemeanor.  This  maybe  done  by  adding  the  following  to  the  section:  "and  shall  be 
punishable  by  a  fine  not  exceeding  Is.ooo  for  each  offense." 

,352.  Unjust  Discriminations.  In  violation  of  Sections  152  to 
156,  inclusive,  and  of  Section  202,  any  natural  person  who 
knowingly  authorizes,  gives  or  affords  any  benefit,  preference 
or  advantage,  or  who  knowingly  receives  or  participates  directly 
in  any  benefit,  preference  or  advantage  from  such  offense,  shall 
be  guilty  of  a  felony  and  on  conviction  shall  be  punishable  by 
imprisonment  as  the  court  may  direct  for  a  period  not  exceeding 
five  years. 

353.  Penalty  for  Failure  to  Make  Reports.  Any  public  utility  which 
fails  to  make  and  file  any  report  called  for  by  the  commission 
within  the  time  specified,  or  within  the  time  extended  as  the 
case  may  be,  or  to  make  specific  answer  to  any  question  pro- 
pounded by  the  commission  shall  forfeit^  not  to  exceed  $5,000 
for  each  such  offense,  and  each  day's  continuance  of  such  failure 
shall  constitute  a  separate  offense. 

'  See  note  to  Section  350. 

354.  Penalty  for  False  Return.  Any  person  who  wilfully  makes  any 
false  return  or  report  to  the  commission,  or  to  any  mem- 
ber, agent  or  employe  thereof,  and  any  person  who  aids  or 
abets  such  person,  is  guilty  of  a  felony,  and  upon  conviction  shall 
be  imprisoned  as  the  court  may  direct  for  a  term  not  exceeding 
five  years. 

355.  Penalty  for  Falsification  of  Accoimts.  Any  person  who  wil- 
fully makes  any  false  entry  in  the  accounts,  records  or  memo- 
randa prescribed  by  the  commission  for  any  public  utility,  or 
wilfully  destroys,  mutilates,  or  by  any  other  means  falsifies 
such  accounts,  records  or  memoranda  or  wilfully  neglects  or  fails 
to  make  full,  true  or  correct  entries  of  aU  facts  and  transactions 
appertaining  thereto  is  guilty  of  a  felony  and  upon  conviction 
shall  be  imprisoned  as  the  court  may  direct  for  a  term  not  ex- 
ceeding five  years. 

63 


356.  Penalty  for  Destroying  Records.  Any  person  who  wilfully 
mutilates  or  destroys  any  accounts,  records  or  memoranda  of  any 
public  utility  is  guilty  of  a  felony,  and  upon  conviction  shall  be 
imprisoned  as  the  court  may  direct  for  a  term  not  exceeding  five 
years;  provided,  however,  that  the  commission  may  at  its  dis- 
cretion issue  orders  specifying  such  operating  or  financial  accounts, 
records,  or  memoranda  of  public  utilities  as  may  after  a  rea- 
sonable time  be  destroyed  and  the  commission  may  prescribe  the 
length  of  time  such  accounts,  records,  memoranda,  books  and 
papers  shall  be  preserved. 

357.  Penalty  for  False  Statement  or  Representation.  Every  officer, 
agent  or  employe  of  a  public  utility,  and  every  other  person 
who  knowingly  authorizes,  directs,  aids  in,  issues  or  executes,  or 
causes  to  be  issued  or  executed,  any  stock,  stock  certificate,  bond, 
note  or  other  evidence  of  indebtedness,  in  non-conformity  with 
the  order  of  the  commission  authorizing  the  same,  or  contrary  to 
the  provisions  of  this  act,  or  who,  in  any  proceeding  before  the 
commission,  knowingly  makes  anv  false  statement  or  representa- 
tion, or  with  the  knowledge  of  its  falsity  files  or  causes  to  be  filed 
with  the  commission  any  false  statement  or  representation,  which 
said  statement  or  representation  so  made,  filed  or  caused  to  be 
filed  may  tend  in  any  way  to  influence  the  commission  to  make  an 
order  authorizing  the  issue  of  any  stock  or  stock  certificate,  or  any 
bond,  note  or  other  evidence  of  indebtedness,  or  which  results  in 
procuring  from  the  commission  the  making  of  any  such  order,  or 
who,  with  knowledge  that  any  false  statement  or  representation 
was  made  to  the  commission,  in  any  proceeding,  tending  in  any 
way  to  influence  the  commission  to  make  such  orders,  issues  or 
executes  or  negotiates,  or  causes  to  be  issued,  executed  or  nego- 
tiated any  such  stock  or  stock  certiflcate,  or  bond,  note  or  other 
evidence  of  indebtedness,  or  who,  directly  or  indirectly,  know- 
ingly applies,  or  causes  or  assists  to  be  applied  the  proceeds  or  any 
part  thereof,  from  the  sale  of  any  stock  or  stock  certificate,  or 
bond,  note  or  other  evidence  of  indebtedness,  to  any  purpose  not 
specified  in  the  commission's  order,  or  to  any  purpose  specified 
in  the  commission's  order  in  excess  of  the  amount  authorized  for 
such  purpose,  or  who,  with  knowledge  that  any  stock  or  stock 
certificate,  or  bond,  note  or  other  evidence  of  indebtedness,  has 
been  issued  or  executed  in  violation  of  any  of  the  provisions  of 
this  act,  negotiates,  or  causes  the  same  to  be  negotiated,  is  guilty 
of  a  felony,  and  on  conviction  thereof  shall  be  imprisoned  as 
the  court  may  direct  for  a  term  not  exceeding  five  years. 

64 


368.  Penalty  for  Obstructing  Commission.  Any  person  who  wil- 
fully obstructs  or  hinders  the  commission  or  a  member  thereof 
or  an  authorized  agent  or  examiner  in  making  an  inspection, 
examination  or  investigation  of  the  accounts,  records,  mem- 
oranda, books  or  papers  of  any  public  utility  or  of  the  property 
or  facilities  thereof  is  guilty  of  a  felony,  and  upon  conviction 
shall  be  fined  not  more  than  $5,000,  or  imprisoned  as  the  court 
may  direct  for  a  term  not  exceeding  five  years,  or  both. 

359.  Penalty  for  Divulging  Information.  Any  regular  or  special 
employe  of  the  commission  who  divulges  any  fact  or  informa- 
tion coming  to  his  knowledge  respecting  an  inspection,  examina- 
tion or  investigation  of  any  account,  record,  memorandum,  book 
or  paper  or  of  the  property  and  facilities  of  a  public  utility,  except 
in  so  far  as  he  may  be  authorized  by  the  commission  or  by  a  court 
of  competent  jurisdiction,  or  a  judge  thereof,  is  guilty  of  a  misde- 
meanor, and  upon  conviction  shall  be  fined  not  more  than  $5,000. 

360.  Public  Utility  Liable  for  Civil  Damages.  In  case  any  public 
utility  shall  do,  cause  to  be  done,  or  permit  to  be  done,  any  act, 
matter  or  thing  prohibited,  forbidden  or  declared  to  be  unlawful, 
or  shall  omit  to  do  any  act,  matter  or  thing  required  to  be  done  by 
this  act,  or  by  any  order  of  the  commission,  such  public  utility 
shall  be  liable  to  the  persons  affected  thereby  for  the  amount 
of  all  loss,  damage  or  injury  caused  thereby  or  resulting  there- 
from. An  action  to  recover  for  such  loss,  damage  or  injury  may 
be  brought  in  any  court  of  competent  jurisdiction  by  any 
person. 

361.  Penal  Actions.  Every  public  utility,  all  officers  and  agents  of 
any  public  utility,  and  every  other  person  shall  obey,  observe 
and  comply  with  every  provision  of  this  act  and  with  every 
order  made  by  the  commission  under  authority  of  this  act  and 
duly  served  in  accordance  with  its  provisions,  so  long  as  the 
same  shall  be  and  remain  in  force.  Any  public  utility  or  its 
officers  or  agents,  and  any  other  person  who  shall  violate  any  of 
the  provisions  of  this  act  punishable  as  a  misdemeanor,  or  who 
fails,  omits  or  neglects  to  obey,  observe  or  comply  with  any  order 
or  any  direction  or  requirement  of  the  commission,  shall  (in  addi- 
tion to  liability  to  the  party  aggrieved  for  all  damages  sustained 
by  reason  of  such  violation)  forfeit  to  the  state  not  to  exceed 
the  sum  of  $5,000  for  each  and  every  violation  or  in  the  case  of 
a  violation  which  is  punishable  as  a  misdemeanor  not  to  exceed 
the  maximum  stun  fixed  as  a  fine  therefor,  which  shall  be 
recovered  in  an  action  at  law  to  the  use  of  the  state  upon  the 

65 


complaint  of  the  commission  appearing  by  its  attorney  or  by  the 
'■  attorney  general  or  district  attorney  of  the  district  in  which  such 
violation  was  committed;  but  no  such  action  shall  be  maintained 
unless  brought  within  two  years  after  the  date  of  such  viola- 
tion; nor  shall  such  an  action  be  maintained  in  the  case  of  a 
person  who  has  already  been  convicted  for  the  same  violation  of 
this  act,  and  recovery  by  an  action  brought  in  accordance  with 
this  section  shall  be  a  bar  to  any  criminal  prosecution  for  the 
same  violation  of  this  act. 

362.  Penalty  for  Accepting  Rebate.  Any  person  receiving  service 
from  any  public  utility  subject  to  the  provisions  of  this  act,  who 
shall  knowingly  by  an  employe,  agent,  officer  or  otherwise, 
directly  or  indirectly,  by  or  through  any  means  or  device 
whatsoever,  receive  or  accept  from  such  public  utility  any 
sum  of  money  or  other  valuable  consideration  as  a  rebate 
or  offset  against  the  regular  charges  for  such  service,  as 
fixed  by  the  schedules  of  rates  provided  for  in  this  act,  shall  in 
addition  to  any  penalty  provided  by  this  act  forfeit  to  the  state 
a  sum  of  money  three  times  the  amount  of  money  so  received 
or  accepted  and  three  times  the  value  of  any  other  consideration 
so  received  or  accepted,  to  be  ascertained  by  the  trial  court;  and 
the  attorney  general  of  the  state  is  authorized  and  directed, 
whenever  he  has  reasonable  grounds  to  believe  that  any  such 
person,  corporation  or  company  has  knowingly  received  or  ac- 
cepted from  any  such  public  utility  any  simi  of  money  or  other 
valuable  consideration  as  a  rebate  or  offset  as  aforesaid,  to 
institute  in  any  court  of  the  state  of  competent  jurisdiction  a 
civil  action  to  collect  the  said  sum  or  simis  so  forfeited  as  afore- 
said; and  in  the  trial  of  said  action  all  such  rebates  or  other  con- 
sideration so  received  or  accepted  for  a  period  of  six  years  prior 
to  the  commencement  of  the  action  may  be  included  therein, 
and  the  amount  recovered  shall  be  three  times  the  total  amount 
of  money  or  three  times  the  total  value  of  such  consideration 
so  received  or  accepted,  or  both,  as  the  case  may  be. 

363.  Perjury.  Any  person  who  knowingly  makes  any  false  state- 
ment of  fact  under  oath,  whether  oral  or  in  writing,  as  re- 
quired by  this  act,  is  guilty  of  perjury  and  upon  conviction  shall 
be  punished  as  provided  for  in  the  perjury  statutes  of  this  state. 

364.  Remedies  Cumulative  and  Not  Exclusive.  The  remedies  pro- 
vided in  this  act  by  way  of  civil  damages  for  persons  injured  by 
an  act  or  omission  of  a  public  utility  shall  be  cumulative,  and  in 
addition  to  any  other  remedy  or.  remedies  in  this  act  provided. 

66 


365.^  Penalties  Paid  to  General  Funds.  AH  forfeitures,  fines  and 
penalties  collected  under  the  provisions  of  this  act  shall  be  paid 
into  the  general  funds  of  the  state. 

'  Numbers  366  to  397,  inclusive,  are  not  assigned  to  sections. 


398.  Repeal  of  Conflicting  Acts.  The  following  acts  and  parts  of 
acts  and  all  other  acts  and  parts  of  acts  in  conflict  with  the 
provisions  of  this  act  are  hereby  repealed  in  so  far  as  they  are 
inconsistent  herewith:  (Here  state  in  full  the  legal  designa- 
tions of  the  acts  and  parts  of  acts  which  are  to  be  repealed.) 

399.  When  Act  Becomes  Effective.    This  act  shall  take  effect 


67 


APPENDIX  A 


REPORT  ON  SUGGESTIONS  FOR  THE   AMENDMENT  OF 
PUBLIC  UTILITY  BILL. 

This  report  has  been  prepared  by  Mr.  William  D.  Kerr,  on  the 
request  of  Messrs.  Low  and  WiUcox.  It  is  a  resume  of  the  argu- 
ments on  objections  to  and  criticisms  of  the  bill  submitted  to  the 
National  Civic  Federation  by  the  Executive  Council  of  its  Depart- 
ment on  the  Regiilation  of  Interstate  and  Municipal  Utilities.  It 
simimarizes  the  more  important  points  developed  from  many  quarters, 
in  numerous  conferences  and  in  lengthy  correspondence,  both  before 
and  after  the  submission  of  the  bill.  No  attempt  is  made  to  pre- 
serve a  narrative  form  of  presentation.  In  effect  the  report  is  an 
annotation  of  the  bill  itself  without  the  citation  of  authorities. 

The  plan  adopted  is  to  set  forth  under  the  number  of  the  section 
the  pertinent  suggestions  and  criticisms  relating  to  each  section  in 
turn.  The  suggestions,  where  there  are  more  than  one  pertaining 
to  a  single  section,  are  lettered  for  the  sake  of  reference  and  con- 
venience. Under  each  suggestion  are  given  in  the  briefest  possible 
form,  as  impartially  as  Mr.  Kerr  can  do  it,  first  the  reasons  advanced 
in  favor  of  the  suggestion,  and  second  the  reasons  opposing  a  change. 
Again  let  it  be  said  that  the  report  does  not  pretend  to  cover  every 
suggestion  that  has  been  made,  though  it  does  cover  the  most  im- 
portant ones. 

Section  15. 

Suggestion,  (a)  Insert  in  line  two,  after  "include, "  the  words 
"every  municipality  and."* 

Argument  For.  Many  municipalities  own  and  operate  facili- 
ties for  rendering  public  utility  services.  The  public  deserves 
protection  from  unreasonable  and  discriminatory  rates  and  from 
inadequate  and  unsafe  service  resulting  from  imperfect  manage- 
ment of  these  facilities.  The  avowed  purpose  of  the  bill  is  to 
protect   the   public   interest   in   these   services.     The   agency, 

*  Note.  The  adoption  of  this  suggestion  would  require  appropriate  sections  or  sub- 
sections, excepting  from  the  application  of  articles  IV,  V,  and  IX  public  utilities  that  are 
municipalities.     It  would  also  enable  Section  230  to  be  removed  from  the  bill. 

68 


whether  private  or  public,  by  which  the  services  are  performed 
is  immaterial.  Experience  has  demonstrated  that  municipalities 
in  the  administration  of  public  utilities  are  prone  to  err  even  as 
are  private  corporations.  The  State  should  subject  municipal- 
ities to  the  same  regulation  as  is  imposed  on  companies.  Fur- 
thermore, in  the  same  or  adjoining  municipalities  municipal  and 
private  plants  frequently  are  found  operating  at  the  same  time. 
Where  actual  competition  exists  the  one  agency  should  not  be 
biu-dened  with  restrictions  to  which  the  other  is  not  subject. 
Potential  competition  frequently  exists  where  there  is  no  actual 
competition  and  comparisons  between  the  two  kinds  of  agencies 
may  result  in  undue  prejudice  to  the  one  which  is  subject  to 
legislative  restraint,  while  seeming  to  favor  the  one  which  is 
not  so  restrained.  Finally,  to  the  extent  that  regulation  of 
private  companies  is  in  the  interest  of  stockholders  and  investors 
similar  regulation  of  municipal  enterprises  is  required  for  the 
protection  of  taxpayers. 

Argument  Against.  Wholly  apart  from  the  merits,  regula- 
tion of  municipally  owned  utilities  is  outside  the  scope  of  this 
bill.  The  investigation  which  resulted  in  this  bill  was  the 
logical  consequence  of  an  inquiry  upon  the  relative  merits  of 
municipal  and  private  ownership  and  operation,  in  which  in- 
quiry the  final  opinion  favored  private  ownership  and  operation 
under  proper  conditions  of  regulation.  The  purpose  of  this 
bill  is  to  define  such  proper  conditions  of  regulation  so  far  as 
they  are  subject  to  control  by  legislative  action. 

Considering  the  suggestion  on  its  merits,  State  regulation 
of  the  rates  and  services  of  municipally  owned  utilities  violates 
the  so-called  home  rule  principle  which  accords  to  municipalities 
and  their  citizens  the  fullest  possible  political  autonomy  con- 
sistent with  the  welfare  of  the  State  at  large.  A  municipality's 
conduct  of  its  own  public  utility  is  a  matter  of  primary  concern 
only  to  its  own  citizens.  The  State  is  not  justified  in  passing 
beyond  the  fundamental  requirement  of  correct  accounting  and 
full  publicity.  These  requirements  are  embodied  in  Section 
230  of  the  bill. 

Suggestion,  (b)  In  the  next  to  the  last  line  of  paragraph 
(b)  insert  the  following  phrase:  "on  the  premises  where  produced, 
or  the  premises  immediately  adjacent  thereto." 

Argument  For.  The  exception  recognizes  a  class  of  pro- 
ducers who  are  generally  referred  to  under  the  designation  of 

69 


"isolated  plants."  The  exception  leaves  the  possible  field  of 
activity  of  an  isolated  plant  as  broad  as  the  proprietary  interests 
in  land  of  its  owners,  and  in  some  localities  might  enable  a  single 
isolated  plant  to  serve  not  only  all  the  buildings  in  a  single  block 
but  disconnected  buildings  in  several  blocks.  In  fact,  the  only 
limitation  within  the  proprietary  interests  in  land  of  the  owner 
would  be  his  ability  to  procure  permits  to  cross  streets.  In 
such  an  event  large  numbers  of  consumers  might  be  denied  the 
protection  of  the  law  and  established  public  utiHties  might  be 
seriously  hampered  by  the  resulting  loss  of  customers. 

Argument  Against.  The  exception  in  paragraph  (b)  is  a 
reasonable  one  under  normal  circumstances.  The  suggestion 
would  establish  an  arbitrary  rule  which  in  some  cases  might 
lead  to  injustice.  For  instance,  while  the  suggestion  might 
except  from  the  operation  of  the  act  the  owner  of  two  office 
buildings  immediately  adjoining  each  other  in  the  same  block, 
it  would  impose  the  obligations  of  the  law  on  the  same  two 
buildings  if  a  street  chanced  to  pass  between  them.  Provided 
fhe  owner  is  able  to  bridg^e  the  gap  between  the  two  buildings 
in  the  latter  case  as  in  the  former,  there  is  no  reason  why  he 
should  be  subjected  to  the  provisions  of  the  bill  in  the  one  case 
and  not  in  the  other,  or  why  his  tenants  should  be  denied  the 
protection  of  the  bill  in  one  case  and  not  in  the  other. 

Suggestion,     (c)     Omit  paragraph  (b). 

Argument  For.  The  application  of  the  bill  to  property 
owners  who  produce  public  services  for  sale  to  their  tenants, 
may  be  left  to  general  law  under  the  definition  of  a  public  utility 
contained  in  paragraph  (a).  Only  such  agencies  are  declared 
to  be  public  utilities  as  furnish  service  "to  or  for  the  public." 
The  isolated  plant  producer  may  safely  be  left  to  take  his 
chances  under  the  local  interpretation  of  this  phrase. 

Argument  Against.  The  bill  should  state  clearly  that  it 
does  not  propose  to  interfere  with  the  beneficial  enjoyment  of 
real  estate  by  its  owners  so  long  as  the  sale  of  services  produced 
is  confined  to  such  property. 


Section  i8.     (New.) 

Suggestion.     Define  the  term  "securities"  in  a  new  section  to 
read  as  follows:    "The  term  'securities'  when  used  in  this  act  shall 

70 


mean  and  include  stocks,  stock  certificates,  bonds,  notes  and  other 
evidences  of  indebtedness  payable  at  periods  of  more  than  twelve 
months  from  the  date  thereof." 

Argument  For.  The  purpose  is  to  simplify  the  wording  of 
sections  relating  to  the  issue  of  sectirities  and  to  avoid  the  fre- 
quent repetition  of  a  long  and  cumbersome  phrase. 

Argument  Against.  The  twenty- two  words  embraced  in  the 
proposed  definition  occur  in  the  text  only  twice.  The  first  ten 
words  of  the  twenty-two  occur  in  this  combination  nine  times. 
No  material  advantage  is  gained  by  the  suggestion. 


Section  19.     (New.) 

Suggestion.  Define  the  term  "issue"  in  a  new  section  to  read 
as  follows:  "The  term  "issue"  when  used  in  this  act  referring  to 
stocks,  stock  certificates,  bonds,  notes  and  other  evidences  of  in- 
debtedness, shall  mean  to  sell,  mortgage,  pledge  or  otherwise  dispose 
of  for  any  consideration  or  for  any  purpose." 

Argument  For.  The  word  "issue"  is  sometimes  used  by 
bankers  in  a  sense  which  differs  from  its  ordinary  legal  meaning. 
Possible  misunderstandings  may  be  avoided  by  inserting  the 
definition.  Strictly  construed,  the  term  "issue,"  unless  defined, 
might  prevent  a  public  utility  from  disposing  of  securities  of 
other  companies  held  in  its  treasury.  (See  provisions  of  Ar- 
ticle IV.) 

Argument  Against.  The  use  of  definitions  in  a  bill  of  this 
character  is  to  be  avoided  wherever  possible.  The  familiar  rule  of 
interpretation  is  that  the  inclusion  of  some  elements  implies  the 
exclusion  of  all  other  elements.  The  courts  can  be  trusted  to 
give  sensible  constructions  if  disagreements  arise. 


Sections  36  and  37. 

Suggestion.  Identification  with  public  utilities  under  the  juris- 
diction of  the  commission  shoiild  not  constitute  a  disqualification 
for  membership  in  the  commission  or  cause  for  removal  from  the 
commission.  Such  identification  should  merely  disqualify  a  com- 
missioner from  sitting  in  a  particular  proceeding. 

Argument  For.     Disqualification  places  an  unreasonable  re- 
striction on  the  character  of  men  available  for  the  positions. 

7^ 


It  attaches  an  unfair  stigma  to  identification  with  public  utili- 
ties. Men  of  substance  frequently  find  their  safest  investments 
in  public  utility  securities  and  disqualification  presents  to  them 
the  alternative  of  withholding  their  services  from  the  public  or 
of  denying  themselves  the  advantages  of  customary  fields  of 
investment. 

Argument  Against.  The  alternative  rule  of  disqualification 
proposed  is  based  on  judicial  practice.  The  cases  are  not 
parallel.  The  functions  of  the  commission  are  continuous  in 
their  application  to  all  public  utilities  under  their  jurisdiction. 
The  commissioners  are  administrative  and  not  judicial  officers. 
When  a  judge  is  disqualified  to  hear  a  particular  case,  other 
judges  may  be  brought  in  to  fill  his  place.  There  are  no  other 
commissioners  to  fill  the  places  of  members  of  the  commission 
disqualified  to  sit  in  a  particular  case. 


Section  44. 
Suggestion.     This  section  should  be  omitted. 

Argument  For.  This  section  accomplishes  no  useful  purpose 
because  "it  is  not  in  the  form  of  an  appropriation  act,  and  can 
have  no  binding  effect  on  the  same  or  subsequent  legislatures. 

Argument  Against.  This  section  does  no  harm  and  serves 
as  a  reminder  to  legislatures  that  appropriations  are  needed  to 
carry  out  the  purpose  of  the  bill. 

Section  46. 

Suggestion.  This  section  should  be  omitted  and  in  its  place 
should  be  substituted  a  section  authorizing  the  commission  to  ap- 
point a  counsel  who  shall  not  appear  as  advocate  in  any  proceeding 
before  the  commission. 

Argument  For.  The  commission  needs  a  disinterested  legal 
adviser  who  will  be  free  from  the  zealousness  engendered  by  the 
advocacy  of  a  cause.  If  attorneys  are  required  to  present 
causes  to  the  commission,  they  may  be  engaged  under  the  broad 
provisions  of  Section  47. 

Argument  Against.  The  statutes  of  some  States  provide 
that  the  Attorneys  General  shall  act  as  attorneys  for  the  com- 

72 


missions.  In  other  States,  the  commissions  are  authorized  to 
employ  attorneys  independently  of  the  Attorneys  General. 
This  section  states  a  preference  for  the  latter  course.  Section 
47  is  broad  enough  to  enable  the  commission  to  retain  inde- 
pendent counsel  for  advice  on  matters  of  law,  if  it  will. 


Section  77. 

Suggestion,  (a)  In  the  first  two  lines  of  paragraph  (a)  strike 
out  the  words  "or  any  person  served  or  claiming  the  right  to  be 
served  thereby  "  and  substitute  therefor  the  words  "or  any  person." 

Argument  For:  It  should  lie  within  the  power  of  any  indi- 
vidual to  start  the  machinery  of  the  commission  in  motion  on 
his  bare  complaint.  The  duties  imposed  by  the  bill  are  con- 
tinuous and  the  administrative  functions  of  the  commission  are 
continuous.  If  a  breach  of  duty  be  discovered,  it  should  be 
remedied  by  suitable  action  on  the  part  of  the  commission  and 
the  commission  should  be  authorized  to  proceed  regardless  of 
the  source  of  its  information  or  of  the  relation  to  the  public 
utility  of  a  possible  complainant.  The  commission  safely  can 
be  trusted- to  protect  itself  from  consequences  of  the  abuse  of 
the  power  possessed  by  any  citizen  to  set  the  machinery  of  the 
commission  in  motion.  The  commission  is  not  an  agency  for 
the  righting  of  private  wrongs  but  one  for  the  protection  of  the 
general  public  welfare. 

Argument  Against.  Opening  wide  the  doors  to  complainants 
will  lead  to  waste  of  the  commission's  time  and  energies  and  to 
needless  expense  and  effort  on  the  part  of  the  public  utiHties 
complained  of.  No  person  should  have  access  to  the  com- 
mission who  is  not  in  the  position  of  a  party  injured  or  likely,  in 
the  nature  of  things,  to  be  injured. 

(b)  See  Section  151. 

(c)  See  Section  201. 


Section  78. 

Suggestion,  (a)  In  lines  four  and  five,  substitute  for  the 
phrase  "used  and  useful  for  the  convenience  of  the  pubHc,"  the  fol- 
lowing phrase:  "used  or  useful  for  the  convenience  of  the  public." 
Make  a  similar  substitution  where  the  words  "used  and  useful" 
occur  in  Sections  278,  279,  280,  282  and  285. 

73 


Argument  For.  Literally  construed,  the  term  "used  and 
useful"  would  deprive  a  company  of  the  right  to  have  con- 
sidered under  the  provisions  of  the  several  sections  surplus  ap- 
paratus and  machinery  not  at  the  moment  actually  in  use  or 
street  construction  laid  down  in  anticipation  of  future  growth, 
but  not  yet  actually  in  use  and  other  property  similarly  situated. 

Argument  Against.  The  term  "used  and  useful"  is  a  cus- 
tomary term  employed  in  the  decisions  of  courts  and  public 
service  commission  laws.  It  has  been  construed  by  courts  and 
commissions  and  no  case  has  been  discovered  in  which  it  has 
not  received  exactly  the  meaning  attributed  to  the  suggested 
alternative  term,  "used  or  useful."  Furthermore,  the  term 
proposed  is  subject  to  the  criticism  that,  on  literal  interpreta- 
tion, it  might  cause  full  consideration  to  be  given  to  property 
which,  though  still  in  use,  has  passed  its  period  of  usefulness, 
such,  for  instance,  as  horse-cars  still  owned  by  an  electric  rail- 
road. 

Suggestion,  (b)  In  the  fourth  line  from  the  end,  strike  out 
the  phrase:  "and  such  other  matters  as  may  have  a  bearing  upon  the 
subjects  under  investigation"  and  substitute  therefor  the  phrase: 
"and  such  other  matters  as  the  commission  may  deem  expedient." 

Argument  For.  The  language  of  the  section  may  prove  an 
obstacle  to  the  commission  by  affording  an  opportunity  to  raise 
a  question  of  law  as  to  what  matters  have  a  bearing  upon  the 
subjects  under  investigation.  The  commission  should  be  al- 
lowed the  fullest  possible  latitude. 

Argument  Against.  While  there  may  be  some  technical 
force  to  the  suggestion,  the  entire  section  seems  so  general  in 
its  terms  as  to  leave  no  doubt  as  to  the  intent  of  the  legislature 
to  give  the  commission  the  fullest  possible  scope  in  its  investi- 
gations. 

Section  8o. 

Suggestion,  (a)  Amend  the  section  so  as  to  provide  that 
rates  fixed  by  the  commission  shall  be  effective  for  a  period  of  time 
not  exceeding  two  years  instead  of  three  years. 

Argument  For.  The  Interstate  Commerce  Law  carries  a 
two  years'  limitation  on  rates  fixed  by  the  Interstate  Commerce 
Commission.  For  the  sake  of  uniformity  in  practice,  the  rule 
in  individual  States  should  be  the  same. 

74 


Argument  Against.  No  dissatisfaction  is  expressed  with  the 
application  of  the  two-year  rule  to  interstate  railroads.  In  the 
case  of  municipal  public  utilities,  it  seems  desirable  to  have  a 
longer  period.  Five  years  probably  would  not  be  too  long. 
The  three-year  period  of  the  bill  is  a  mean  between  the  two 
extremes. 

Suggestion,  (b)  Strike  out  all  of  the  last  two  lines  before  the 
first  word  and  substitute  therefor  the  following:  "until  a  change  is 
authorized  by  the  commission." 

Argument  For.  Rates  once  fixed  by  the  commission  should 
stand  until  changes  are  authorized  by  the  commission  itself. 
When  the  conditions  change  under  which  a  rate  is  fixed,  the 
public  utility  may  apply  to  the  commission  for  authority  to 
change  the  rate,  but  once  a  rate  is  taken  in  hand  by  the  com- 
mission, it  should  be  subject  to  no  change  without  the  com- 
mission's authority. 

Argument  Against.  The  proposal  would  result  in  rigidity 
of  rates  and  rate  schedules  which  is  not  in  the  public  interest. 
No  public  service  commission  can  be  equipped  to  supervise  such 
a  mass  of  detail  as  the  proposed  substitute  wotild  involve.  The 
limitation  of  the  section  is  supposed  to  represent  the  approximate 
period  during  which  conditions  will  maintain  which  the  com- 
mission found  to  exist  when  it  made  its  investigation  for  the 
determination  of  a  rate. 

Suggestion,     (c)     See  Section  i 5  i . 

Section  81. 
Suggestion.     See  Section  201. 


Section  83. 

Suggestion,  (a)  Substitute  for  the  section  a  provision  that 
no  reports,  records  and  accounts  in  the  possession  of  the  commission 
shall  be  open  to  inspection  by  the  public  unless  authorized  by  the 
commission. 

Argument  For.  The  commission  should  be  allowed  to  de- 
termine what  reports,  records  and  accounts  in  its  possession 
shoiild  be  open  to  public  inspection. 

75 


Argument  Against.  Reports,  records  and  accounts  in  the 
possession  of  the  commission  are  of  a  pubHc  nature  and  prima 
facie  should  be  at  the  disposal  of  the  public.  There  may  be 
certain  classes  of  reports,  records  and  accounts  which^  should 
not  be  disclosed  to  the  public  gaze.  Section  212  subsequently 
requires  that  reports  of  accidents  shall  not  be  open  to  public 
inspection  unless  specially  authorized  by  the  commission.  The 
section  of  the  bill  is  preferable  to  the  suggested  substitute  be- 
cause it  emphasizes  publicity  rather  than  secrecy. 

Suggestion,  (b)  Strike  out  the  exception  beginning  in  the 
middle  of  the  third  line  and  add  a  new  sentence  as  follows:  "When- 
ever it  determines  that  the  public  interest  so  requires,  the  com- 
mission may  order  that  any  report,  record  or  account  in  its  possession 
be  withdrawn  from  public  inspection  for  a  period  not  to  exceed 
ninety  days." 

Argument  For.  If  the  withdrawal  from  public  inspection  of 
reports,  records  and  accounts  is  left  optional  with  the  com- 
mission, there  is  a  likelihood  that  strong  pressure  may  be  brought 
to  bear  on  the  commission  to  exercise  its  power  in  particular 
cases  where  the  withdrawal  of  the  report,  record  or  account  is 
not  in  the  public  interest.  There  should  be  a  definite  limitation 
on  the  commission's  right  to  defeat  this  publicity  effort  of  the 
-  bill. 

Argument  Against.  Throughout  the  bill  the  authority  con- 
ferred on  the  commission  is  broad  and  general.  Enormous  op- 
portunities may  be  afforded  a  commission  susceptible  to  im- 
proper influences  to  defeat  particular  provisions.  No  sufficient 
reason  appears  for  making  an  exception  to  the  general  rule  in 
this  case. 

Article  IV. 

Suggestion.  Strike  out  all  of  the  article  and  substitute  pro- 
visions which  will  effect  substantial  publicity  of  the  essential  details 
of  stock  and  bond  issues  without  requiring  that  the  commission  give 
or  withhold  its  approval  in  any  case. 

Argument  For.  The  prior  approval  of  a  public  service  commis- 
sion as  a  condition  precedent  to  the  financing  of  properties  renders 
financing  more  difficult  than  it  would  otherwise  be  and  majces 
it  impossible  in  some  cases  to  take  advantage  of  favorable 

76 


markets  and  imposes  an  unwise  and  unnecessary  restriction  on 
the  ability  of  a  public  utility  to  discharge  its  primary  duties  of 
providing  adequate  service  at  reasonable  rates.  No  necessary 
relation  exists  between  stocks  and  bonds  outstanding  and  the 
reasonableness  of  rates.  The  primary  objective  of  the  legisla- 
ture in  enacting  such  a  law  is  the  consimier  and  not  the  in- 
vestor. After  it  has  authorized  the  issue  of  specific  securities, 
the  commission  morally,  if  not  legally,  is  estopped  to  take  any 
action  regarding  either  rates  or  service  which  will  result  in  deny- 
ing such  securities  an  opportunity  to  earn  the  interest  specified 
or  the  fair  dividends  expected.  This  principle  is  likely  to  have 
application,  particiilarly  in  the  case  of  a  company  established 
when  the  act  takes  effect  and  which  subsequently  seeks  author- 
ity to  issue  securities  of  the  same  class  in  addition  to  securities 
then  outstanding.  The  obligation  of  the  company  to  all  bond 
holders  and  stock  holders  of  the  same  class  is  the  same  and  if 
the  commission  is  prevented  from  interfering  with  the  earnings 
of  subsequently  issued  securities,  it  is  likewise  prevented  from 
interfering  with  previously  issued  securities.  Consequently, 
the  requirement  of  approval  or  disapproval  imposes  on  the 
commission  the  obligation  of  determining  for  all  time  the  rights 
of  specific  classes  of  security  holders  on  the  first  application  for 
authority  to  issue  additional  securities  of  anv  class. 

Argument  against.  It  is  futile  to  assert  that  no  relation  exists 
between  the  rates  and  service  of  a  public  utility  and  its  capi- 
talization. Excessive  capitalization  necessarily  leads  to  a  diver- 
sion of  income  to  the  payment  of  interest  or  dividends  which 
might  otherwise  be  devoted  to  the  improvement  of  service  or 
the  reduction  of  rates.  It  does  not  follow  necessarily  that  the 
ability  of  a  company  to  perform  its  primary  duty  of  furnishing 
adequate  and  safe  service  at  reasonable  rates  varies  inversely  with 
■  the  amount  of  its  capitalization.  There  may  be  evils  attached 
to  under-capitalization  as  far-reaching  as  those  attached  to 
over-capitalization  but  the  existence  of  the  former  does  not 
negative  the  possibility  of  the  latter.  Freedom  from  practical 
restraint  in  the  issuance  of  the  stock  of  a  company  enjoying 
monopoly  privileges  invites  speculation.  This  is  a  factor  which 
public  utility  laws  should  strive  to  eliminate.  Publicity  of 
public  service  issues  may  be  a  palliative  but  it  is  not  a  certain 
preventive.  Outstanding  capital  issues  may  not  have  a  con- 
trolling influence  on  the  courts  in  determining  values  for  rate- 
making  purposes  but  actual  rate  revision  is  not  continuous  in 

77 


practice,  and  if  capitalization  is  excessive,  management  naturally 
will  lean  to  its  protection.  Furthermore,  if  the  credit  of  these 
monopolistic  enterprises  is  to  be  maintained  on  a  basis  which 
will  secure  fresh  contributions  of  capital  as  requirements  neces- 
sitate, investors  will  need  protection  from  the  possible  abuses 
of  speculation. 

Section  ioi.  . 

Suggestion.  Add  to  the  section  a  new  sentence  to  read  as 
follows:  "All  of  the  provisions  of  this  article  are  limited  in  their 
application  to  special  privileges  as  herein  defined." 

Argument  for.  This  section  implies  a  purpose  to  refrain  from 
regulating  stock  issues  and  bond  issues  seciu-ed  by  liens  on 
property  situated  outside  the  State  in  the  case  of  public  utilities 
incorporated  under  the  laws  of  another  State.  The  implication, 
however,  is  not  clear  enough  to  be  made  effective  in  construing 
the  substantive  sections,  such  as  Sections  103,  104,  105  and 
others.  The  proposed  sentence  makes  clear  this  limitation  in 
its  application  to  the  entire  article. 

Argument  against.  In  case  of  doubt  as  to  the  limitation,  the 
entire  article  probably  would  be  construed  as  a  whole.  While 
the  proposed  addition  may  not  be  necessary,  probably  it  would 
do  no  harm. 

Section  103. 

Suggestion,  (a)  Revise  the  section  so  that  it  will  read  as 
follows : 

"Section  103.  Purpose  for  which  Securities  may  be  Issued.  Sub- 
ject to  the  provisions  of  this  act  and  of  the  order  of  the  commission 
issued  as  provided  in  this  act,  a  public  utility  may  issue  securities 
for: 

.   "(a)     Money,  services,  property  or  other  valuable  consideration 
which  may  properly  be  capitalized. 

"  (b)     Discharge  or  lawful  refunding  of  its  obligations. 

"(c)     (Same  as  original  sub-paragraph  (b)     ). 

"Provided,  and  not  otherwise,  that  such  public  utility,  in  addi-' 
tion  to  the  other  requirements  of  law,  shall  first  have  secured  from 
the  commission  an  order  authorizing  such  issue  as  provided  in  this 
act." 

78 


Argument  for.     A  public  utility  has  two  sources  of  income: 

I  St.     The  sale  of  its  securities;  and 

2nd.     Its  earnings. 

There  are  many  expenditures  for  which  it  woiild  be  impossible 
to  issue  securities  under  the  section  as  written,  and  which  it 
would  be  impracticable  to  charge  against  earnings.  Of  such 
a  nature  are  necessary  expenditures  incident  to  establishing 
a  new  enterprise.  There  are  no  earnings  against  which  to 
charge  such  expendittu-es.  They  cannot  properly  and  safely  be 
provided  for  through  the  issue  of  temporary  notes  imder  the 
provisions  of  Section  113.  Capitalization  of  the  cost  of  paving 
between  the  tracks  of  a  street  railway  is  not  provided  for  in 
Section  103  under 

(a)  because  paving  is  the  property  of  the  city  and  not  of 
the  utility;  under 

(b)  because  it  is  not  the  property  of  the  utility  or  a  part  of 
its  facilities;  nor  under  (c)  or  (d). 

An  example  of  temporary  capitalization  subject  later  to 
amortization  would  be  an  expenditiu-e  made  by  a  water  power 
either  before  starting  or  in  its  early  years  of  operation,  to  induce 
the  establishment  and  construction  of  power  using  industries 
in  its  vicinity.  If  such  expenditures  were  not  permitted,  the 
development  of  many  of  the  larger  water  powers  of  the  country 
would  be  quite  impossible.  The  utility  cannot  pay  for  such 
expenditures  from  earnings  before  it  starts  operation  or  during 
its  early  years  when  its  business  is  undeveloped.  It  is  im- 
practicable to  specify  by  statute  in  advance  every  possible 
legitimate  basis  for  the  issue  of  securities.  Public  service  com- 
missions shoiild  be  given  very  broad  powers  that  they  may 
meet  actual  situations  as  they  arise  without  embarrassment 
from  attempted  statutory  anticipation  of  them. 

Argument  against.  In  the  first  place,  the  proposed  sub- 
stitute overlooks  a  fundamental  distinction  made  in  the  bill, 
namely,  the  distinction  between  consideration  and  tdtimate 
purpose.  The  result  of  ignoring  the  distinction  becomes  evident 
when  the  proposed  substitute  is  paraphrased  in  part:  "A 
public  utility  may  issue  securities  for  money  which  may  properly 
be  capitalized."  Either  all  money  in  the  possession  of  a  public 
utility  may  be  capitalized  or  none.  The  fact  is  that  a  public 
utility  is  not  organized  to  engage  in  the  banking  business  or  to 
deal  with  money  as  a  commodity.  The  issue  of  stocks  or  bonds 
for  the  purpose  alone  of  procuring  money  would  not  be  proper. 

79 


The  money  received  as  consideration  is  but  a  means  to  an  end 
and  the  propriety  of  the  end  shotild  determine  the  propriety 
of  the  issue.  Money  is  needed  to  meet  the  payrolls  of  operating 
employees  as  well  as  to  pay  the  cost  of  paving,  but  it  would  not 
be  contended  that  permanent  capitalization  should  be  author- 
ized to  meet  current  operating  expenses.  The  consideration 
for  every  issue  of  stocks  or  bonds  must  be  either  property  or 
services.  Money  itself  is  property  but  the  propriety  of  issuing 
securities  in  consideration  for  specific  pieces  of  property  or 
specific  services  depends  on  the  character  of  the  property  or  the 
nature  of  the  services  or,  to  state  the  matter  differently,  the  pro- 
priety of  the  exchange  depends  on  the  ultimate  purpose  to  which 
the  property  in  question  or  the  services  in  question  are  to  be 
applied. 

In  the  second  place,  the  ignoring  of  the  distinction  between 
consideration  and  purpose  leads  to  an  absurd  conclusion  with 
respect  to  the  proposed  limitation  of  the  alleged  purpose.  The 
limitation  as  found  in  sub-paragraph  (a)  of  the  proposed  sub- 
stitute, is  "which  may  properly  be  capitalized."  This  phrase 
clearly  qualifies  all  that  goes  before.  It  qualifies  money  as 
well  as  "services,  property  or  other  valuable  consideration." 
As  already  observed,  it  is  not  proper  for  a  public  utility  to  capi- 
talize money.  A  literal  interpretation  of  the  limitation  at  least 
woiild  nullify  the  entire  provision. 

Third.  More  fundamental  than  anything  that  has  preceded, 
however,  is  the  objection  that  the  proposed  limitation  evades 
the  very  purpose  of  the  section  as  drafted.  The  purpose  of 
Section  103  is  to  state  definite  rules  for  the  guidance  of  the 
commission  regarding  what  may  be  capitalized  with  "pro- 
priety" or  lawfulness.  The  proposed  substitute  leaves  the  entire 
question  open.  The  section  becomes  meaningless  and  might 
better  be  omitted.  The  proposed  substitute  is  no  more  than 
a  statement  of  general  law.  It  has  no  place  in  a  regulating 
statute.  Commissions  cannot  be  given  power  to  act  arbitrarily 
and  to  make  or  unmake  substantive  rights.  Throughout  the 
bill,  definite  standards  of  conduct  are  prescribed  for  the  guidance 
of  the  commission.  The  theory  of  the  bill  is  that  the  com- 
mission is  an  administrative  body  charged  with  the  responsi- 
bility of  applying  the  specific  rules  laid  down  by  the  legislature. 
The  effect  of  the  proposed  substitute  would  be  either  to  nullify 
the  bill  or  to  make  of  the  commission  a  mere  ministerial  office 
for  the  recording  of  stock  and  bond  issues. 

Fourth.     The  proposed  substitute  omits  entirely  the  im- 

80 


portant  limitation  found  in  the  sixth  Hne  of  the  original  section, 
which  is  as  follows:  "when  necessary  and  reasonably  required 
for  the  following  purposes  and  no  others."  This  omission  tends 
further  to  emasculate  the  section  and  with  it,  regulation  of  stock 
and  bond  issues. 

Fifth.  The  original  section  is  carefully  considered  and  is 
broad  enough  to  include  every  proper  purpose  for  the  issue  of 
stocks  or  bonds.  "Acquisition  of  property"  is  broad  enough 
to  cover  every  expense  incurred  in  the  development  of  a  public 
utility  property  itself.  Services  devoted  to  acquiring  rights, 
such  as  rights  of  way,  franchises,  contracts,  et  cetera,  are  spent 
in  the  acquisition  of  property.  While  paving  between  rails  may 
not  remain  in  the  ownership  of  a  street  railway  company,  such 
paving  would  appear  to  be  a  part  of  the  facilities  which  the 
company  furnishes,  particularly  as  such  paving  usually  is  done 
in  pursuance  of  franchise  obligations.  At  any  rate,  substan- 
tially, this  language  has  been  on  the  statute  books  of  at  least 
one  State  for  several  years  and  no  instance  is  cited  in  which  it 
has  been  construed  in  accordance  with  the  foregoing  objection. 

Sixth.  It  has  yet  to  be  established  as  a  principle  of  public 
utility  law  that  it  is  any  part  of  the  function  of  a  public  service 
corporation  to  subsidize  industries  whose  sole  connection  with 
them  is  their  use  of  the  service  furnished.  If  it  is  proper  for  a 
water  power  company  to  make  expenditures  to  induce  the  estab- 
lishment and  construction  of  power  using  industries  in  its  vicin- 
ity, it  is  equally  proper  for  railroads  to  make  expenditures  to 
induce  the  establishment  and  construction  of  traffic  producing 
industries  on  their  lines.  Such  practices  on  the  part  of  railroads 
have  received  the  ubiquitous  designation  of  rebating  and  unjust 
discrimination  in  other  forms.  Public  service  companies  are 
incorporated  for  the  purpose  of  supplying  public  needs  and  not 
for  the  purpose  of  exercising  their  public  franchise  to  influence 
industrial  and  commercial  movements.  This  discussion,  how- 
ever, relates  solely  to  stock  and  bond  issues  and  not  to  the 
investment  of  surpluses  from  earnings. 

Suggestion,  (b)  Amend  sub-paragraph  (d)  so  as  expressly  to 
permit  the  issue  of  stocks  and  bonds  to  reimbiirse  a  company  for 
money  expended  for  any  of  the  purposes  defined,  although  secured 
in  the  first  instance  by  an  issue  of  securities,  if  such  securities  have 
been  paid  off  out  of  income. 

Argument  For.  The  bill  should  authorize  the  permanent 
capitalization  of  such  items  as  equipment  purchases  secured  in 


the  first,  instance  by  equipment  bonds  which  subsequently  are 
paid  off  out  of  income.  It  should  also  authorize  the  recapitali- 
zation of  property  secured  in  the  first  instance  by  bonds  which 
are  paid  off  out  of  income,  under  sinking  fund  provisions. 

Argument  Against.  The  propriety  is  doubtful  of  authoriz- 
ing the  issue  of  new  securities  to  replace  bonds  retired  under  the 
provisions  of  sinking  fund  requirements.  It  would  appear  that 
upon  such  retirement  new  securities  should  be  issued  only  as 
new  requirements  arose  under  the  provisions  of  sub-paragraphs 
(a),  (b)  and  (c).  If  a  company  in  borrowing  money  agrees  to 
repay  the  same  by  regular  drafts  on  income,  the  prc^erty  pro- 
cured by  the  money  so  repaid  should  be  regarded  as  fully  paid 
for  when  the  bonds  are  retired.  With  regard  to  the  retirement 
from  income  of  equipment  bonds  there  would  appear  to  be  no 
question  about  the  authority  under  sub-paragraph  (d)  to  re- 
plenish the  treasury  for  payments  from  income  by  the  issue  of 
stocks  or  bonds.  The  suggestions  raise  certain  collateral  ques- 
tions of  accounting  practice  upon  which  it  is  not  possible  to 
enter  here.  It  is  believed  that  the  section  as  drafted  is  broad 
enough  to  meet  every  such  contingency. 


Section  104. 

Suggestion,  (a)  In  the  second  line,  after  the  word  "utility," 
insert  the  words  "except  as  provided  in  Section  106";  and  in  the 
third  line,  after  the  word  "indebtedness,"  insert  the  words  "at  par 
or  face  value." 

Argument  For.  In  providing  that  no  public  utility  shall 
issue  stocks,  bonds,  etc.,  "to  an  amount  exceeding  that  which 
may  be  necessary  and  reasonably  required  to  enable  such  public 
utility  to  perform  its  duty  to  the  public, "  the  section  appears  to 
require  securities  to  be  sold  at  a  premium  if  they  will  command 
a  premiimi.  It  is  unwise,  under  any  circimistances,  to  require 
any  portion  of  the  capital  of  public  utility  to  be  issued  above  par. 

Argument  Against.  The  question  of  issuing  securities  at  par 
arises  ordinarily  only  in  the  case  of  stocks.  So  far  as  bonds  are 
concerned,  the  adjustment  of  interest  rates  ordinarily  will  suf- 
fice to  keep  prices  of  new  issues  at  or  below  par.  Respecting 
the  issue  of  stock  at  prices  above  par,  the  section  seems  not  to 
be  designed  to  accomplish  this  purpose.  The  section  is  prac- 
tically identical  with  the  similar  provision  of  the  New  York 

82 


Public  Service  Commission's  law.  It  does  not  appear  that  the 
New  York  provision  has  ever  been  interpreted  to  authorize  the 
Commission  to  require  stock  to  be  issued  at  a  premium. 

SuGGES'rtON.  (b)  In  the  fifth  line,  substitute  for  the  phrase 
"to  perform  its  duty  to  the  public,'-'  the  phrase  "to accomplish  the 
objects  of  its  incorporation." 

Argument  For.  The  words  "to  perform  its  duty  to  the 
public"  seem  unduly  to  restrict  the  action  of  the  utility.  The 
investor  must  have  reasonable  freedom  to  make  a  public  utility 
property  a  financial  success,  or  he  will  invest  in  some  other  form 
of  enterprise.  Strictly  speaking,  it  is  not  a  part  of  the  duty  of 
a  street  railway  to  the  public  to  establish  and  operate  an  amuse- 
ment park,  but  the  financial  success  of  the  railway  may  to  a  con- 
siderable extent  depend  on  the  establishment  of  such  a  park. 

Argument  Against.  In  jurisdictions  where  statutes  govern- 
ing the  incorporation  of  public  service  companies  restrict  the 
scope  of  such  companies  to  the  performance  of  public  duties,  the 
two  phrases  are  practically  synonymous.  Where,  however,  in- 
corporation laws  are  liberal  enough  to  authorize  a  company  to 
be  organized  for  the  purpose  of  engaging  in  a  private  as  well  as 
a  public  business,  the  distinction  between  the  two  phrases  is 
important.  Companies  organized  to  perform  public  duties 
enjoy  privileges  which  are  not  accorded  to  companies  organized 
for  ptirely  private  purposes.  The  very  performance  of  a  public 
duty  is  a  privilege  in  itself,  because  of  the  power  to  tax  which 
it  implies.  On  the  other  hand,  such  companies  are  subjected 
to  certain  definite  responsibilities  which  are  not  imposed  on 
companies  organized  for  private  purposes.  The  bill  under  con- 
sideration is  an  evidence  of  such  responsibilities.  So  long  as 
the  distinction  exists  between  a  public  business  and  a  private 
business,  it  would  seem  desirable  that  they  be  performed  by 
separate  and  distinct  agencies.  Otherwise,  the  credit  growing 
from  the  privileges  enjoyed  in  the  conduct  of  the  public  business 
might  be  employed  to  further  a  private  business,  while  the  sup- 
posedly greater  risks  of  the  private  business  might  become  a 
burden  on  the  public  business.  By  combining  a  public  and  a 
private  business  in  one  organization,  the  enjoyment  of  the 
special  privileges  might  be  seriously  abused.  Whether  the 
amusement  park  business  is  so  closely  allied  with  the  public 
business  of  furnishing  street  railway  service  as  to  render  the 
conduct  of  such  business  a  part  of  the  public  duty  of  the  street 

83 


railway  company,  is  a  matter  which  belongs  properly  to  the 
general  law  of  each  jurisdiction.  If,  however,  the  two  businesses 
are  not  so  closely  related,  it  must  be  evident  that  the  street  rail- 
way company  should  not  be  authorized  to  use  its  credit  to  enter 
upon  and  engage  in  the  private  competitive  amusement  park 
business.  This  bill  seems  to  place  no  restrictions  on  the  power 
of  a  public  utility  to  invest  its  surplus  in  whatsoever  manner  it 
will. 

Section  105. 

Suggestion.  Beginning  in  the  second  line  strike  out  the  words 
"or  of  services  or  property  at  the  true  money  value  thereof  as  found 
and  determined  by  the  Commission,"  and  insert  in  place  thereof 
the  words  "services,  property  or  other  consideration."  In  the  next 
to^the  last  line,  insert  the  words  "of  value"  before  the  word  "equal." 

Argument  For.  The  amendment  brings  this  section  into 
conformity  with  the  proposed  revision  of  Section  103 — see  pro- 
posal  (a) . 

If  the  value  of  the  consideration  received  for  security  issues 
is  left  absolutely  and  finally  to  the  Commission,  utility  secur- 
ities are  likely  to  become  quite  unattractive  to  the  investor.  Com- 
missioners cannot  be  expected  to  avoid  mistakes  in  judgment 
in  matters  of  value.  The  determination  of  value  is  of  vital 
importance  to  the  investor  and  he  will  be  slow  to  develop  or 
extend  the  utility  if  after  he  has  paid  what  he  considers  a  fair 
price  for  service  or  property  he  may  be  prevented  from  realizing 
or  earning  a  return  on  a  part  of  his  investment,  simply  because 
the  commissioners  think  that  he  paid  too  high  a  price.  There 
should  clearly  be  an  appeal  to  the  court  for  review  in  case  of 
disagreement  in  this  important  matter  of  value. 

Argument  Against.  First,  the  suggested  amendment  sub- 
stitutes for  the  enumeration  of  the  kinds  of  consideration  the 
following  enumeration,  "money,  services,  property  or  other 
consideration."  Every  conceivable  consideration  will  fall  under 
the  head  either  of  property  or  services.  Money  itself  is  property. 
In  the  section,  however,  the  distinction  is  made  between  money 
on  the  one  hand  and  property  and  services  on  the  other  hand. 
A  money  consideration  needs  no  appraisal.  It  is  only  property 
other  than  money  or  services  that  require  appraisal.  The 
purpose  of  this  section  is  not  to  enumerate  the  kinds  of  consider- 
ation but  to  confer  power  on  the  Commission  to  value  the  con- 

84 


sideration  when  it  is  other  than  money.     The  suggested  amend- 
ment mistakes  entirely  this  purpose. 

Second,  the  elimination  of  the  authority  conferred  on  the 
Commission  to  value  the  consideration  emasculates  the  section. 
The  suggested  amendment  is  nothing  more  than  a  re-statement 
of  the  general  law  of  practically  every  State.  It  is  the  general 
rule  that  stock  may  be  issued  at  not  less  than  par  for  value  re- 
ceived. Value,  however,  is  left  to  the  determination  of  the 
board  of  directors.  Section  105  substitutes  for  this  determina- 
tion the  findings  of  the  Commission.  This  substitution  is  a 
fundamental  part  of  the  plan  of  regulation  proposed  by  the  bill. 
The  suggested  amendment  is  a  collection  of  meaningless  words 
so  far  as  the  regulation  of  stock  issues  is  concerned.  Experience 
in  States  where  provisions  are,  in  effect,  practically  identical  to 
Section  105,  would  seem  to  indicate  that  investors  welcome  the 
certificate  of  the  Commission  that  new  securities  issued  represent 
real  value  added  to  the  property.  The  practical  operation  of 
the  section  is  that  the  investor  referred  to  above  makes  his  con- 
tracts for  services  or  property  subject  to  the  findings  of  the  Com- 
mission as  to  value.  Under  the  suggested  amendment  there 
is  no  occasion  for  a  court  review  for  the  simple  reason  that 
nothing  is  left  for  the  determination  of  the  Commission. 

(Sections  I03,  105,  106  and,  to  a  lesser  degree.  Section  104,  are  the  foundation  stones  of 
the  article  on  stocks  and  bonds.  With  these  sections  eliminated  or  emasculated,  most  of 
the  remaining  sections  of  the  article  would  have  little,  if  any,  value.  These  are  the  sections 
that  establish  the  standards.  Included  in  this  category  are  Sections  107  and  108.  Sections 
1 09-1 16  inclusive  clearly  are  subordinate  to  the  fundamental  sections.  For  instance.  Section 
109  would  have  little  force  if  it  were  not  .supported  by  the  substitutive  rules  of  the  preceding 
sections.  Various  proposals  have  been  made  for  the  modification  of  the  subordinate  sec- 
tions. As  all  of  these  proposals  are  predicated  on  the  modification  of  the  fundamental  sec- 
tions, which  amounts  virtually  to  the  substitution  of  a  plan  of  publicity  for  a  plan  of  regulation, 
the  proposed  substitutes  for  the  subordinate  sections  are  not  considered  in  detail.  The 
primary  question  raised  in  connection  with  all  of  the  sections  may  be  resolved  to  the  issues 
concerning  the  relative  advisability  of  a  plan  of  regulation  based  alone  on  publicity  and  a 
plan  which  contemplates  the  substitution  of  the  judgment  of  the  administrative  commission 
for  the  judgment  of  the  board  of  directors  in  such  matters  as  the  propriety  of  the  purpose  for 
which  securities  are  proposed  to  be  issued,  the  necessity  of  issues,  the  value  of  the  considera- 
tion received  for  issues  when  such  consideration  is  other  than  money,  the  treatment  of  debt 
discount  and  expense,  and  the  relative  proportions  of  stocks  and  bonds.  Mention  should  be 
made,  however,  of  one  line  of  objection  made  to  Sections  109-1 16.  Public  utilities,  whenever 
possible,  arrange  for  the  sale  of  their  securities  in  advance  of  the  expenditure  of  the  proceeds. 
Markets  for  utility  securities  are  by  no  means  constant  quantities.  They  fluctuate  widely 
and  rapidly  and  a  public  utility  may  be  able  to  save  very  considerable  amounts  through  its 
ability  to  take  advantage  of  favorable  market  conditions.  Most  public  utilities  base  their 
financing  on  budgets  of  estimated  expenditures  for  at  least  a  year  in  advance.  The  items 
in  the  budget  are  estimates  which  are  subject  to  change  during  the  year.  Within  its  limita- 
tions, the  budget  is  the  best  information  available  on  which  to  base  financing  and,  while 
individual  items  may  change,  the  budget  as  a  whole  is  usually  quite  accurate.  Such  financing 
in  advance,  it  is  said,  however,  would  be  impracticable  under  the  requirements  of  Sections 
109-116.  It  would  be  impossible  in  advance  of  construction  to  furnish  to  the  commission 
the  information  which  it  would  be  necessary  for  it  to  have  to  issue  an  order  in  the  form  re- 
quired by  Section  109.  Furthermore,  the  procedure  required  is  unnecessarily  cumbersome 
and  would  be  exceedingly  burdensome  and  expensive  in  the  case  of  many  properties.  Definite 
details  of  procedure  should  not  be  prescribed  under  the  act.  Different  methods  of  procedure 
might  properly  be  adopted  in  a  small  State  like  Rhode  Island  from  those  adopted  in  a  large 
State  like  Texas. 

These  objections  may  be  answered  briefly.  Under  the  theory  of  the  bill,  regulation  means 
the  ascertainment  by  the  commission  of  certain  definite  facts.  If  these  facts  are  required 
to  be  ascertained  and  are  ascertained,  it  follows  necessarily  that  the  commission  should  be 
empowered  to  take  the  steps  necessary  to  determine  the  facts  (Section  iii)and  to  set  forth 
the  facts  in  its  order  of  approval  (Section  109).  As  already  stated.  Sections  109-116  are 
subordinate  to  Sections  103-108  and  must  stand  or  fall  with  these  sections. 

As  to  the  financing  of  requirements  in  advance,  the  objections  place  an  unwarranted  inter- 

85 


pretation  on  the  act.  The  bill  is  not  inconsistent  with  budget  financing.  This  is  demon- 
strated by  practical  experience  with  similarly  constructed  acts.  The  customary  procedure  is 
for  utilities  to  ask  for  and  obtain  authority  to  issue  securities  to  meet  the  requirements  of 
specific  budgets.  Proof  is  required  to  be  made  that  expenditures  are  made  in  accordance  with 
the  budget  requirements  (Sections  115,116)  and  in  proving  such  proof,  commissions,are  obliged 
necessarily  to  recognize  the  practical  Hmitations  of  the  budget  method.  Although  this  plan 
of  supervision  has  been  employed  in  some  States  for  a  number  of  years,  the  extended  discus- 
sion of  these  sections  has  failed  to  disclose  a  single  instance  in  which  it  has  interfered  with 
generally  accepted  methods  of  financing. 

Application  to  the  commission  for  authority  to  issue  securities  and  investigation  by  the 
commission  necessarily  consume  time  and  involve  some  outlay,  both  on  the  part  of  the 
applicant  and  of  the  commission.  This  would  appear  to  be  an  inevitalale  consequence  of  any 
substantial  plan  of  supervision.  If  the  cost  of  regulation  is  found  to  exceed  the  gains,  regu- 
lation cannot  exist.  It  must  be  remembered,  however,  that  the  alternative  to  regulation 
is  public  ownership  and  operation. 


Section  io6. 

Suggestion,  (a)  This  section  should  conform  to  Section  105, 
and  if  Section  105  is  amended  as  suggested  this  section  should  be 
similarly  amended. 

Suggestion,  (b)  Strike  out  this  section  and  substitute  for  it 
a  section  providing  for  the  issue  of  stock  having  no  par  value. 

Argument  For.  The  placing  of  a  par  value  on  stock  certi- 
ficates is  an  anomaly.  Capital  stock  represents  the  right  to 
control  or  manage  a  company  and  a  right  to  participate  in  the 
distribution  of  such  profits  as  there  may  be.  The  labeling  of 
stock  with  a  par  value  leads  to  a  misapprehension  of  the  nature 
of  the  stock.  No-par-value  stock  squares  with  the  fact  and 
eliminates  most  of  the  problems  connected  with  the  attempt  to 
regulate  stock  issues. 

Argument  Against.  The  objections  to  the  no-par-value  idea 
are  practical  rather  than  theoretical.  The  financial  world  and 
investors  are  accustomed  to  shares  having  definite  par  values. 
If  corporations  could  be  re-financed  from  the  beginning,  it 
might  be  feasible  to  institute  the  no-par-value  share.  An  at- 
tempt at  this  late  day  to  compel  a  substitution  might  lead  to 
disaster.  It  would  seem  that  the  subject  is  one  for  general 
legislation  affecting  all  corporations,  private  as  well  as  public 
service,  and  that,  at  the  first,  the  no-par-value  plan  of  financing 
by  stock  issues  should  be  optional  and  not  obligatory. 


Section  107. 

Suggestion,  (a)  The  parenthetical  phrase  in  line  three  may 
be  omitted  if  Section  106  is  amended  in  accordance  with  the  fore- 
going suggestion. 

86 


Suggestion,     (b)     After  the  last  word  of  the  section,  add  the 
following:  "except  with  the  permission  of  the  Commission." 

Argument  For.  This  will  make  the  reqtiirement  more  elastic 
and  give  the  Commission  authority  to  afford  relief  in  exceptional 
cases.  In  a  year  of  dull  business  it  might  be  impossible  to  main- 
tain both  the  regular  rate  of  dividends  and  the  plan  of  amortiza- 
tion. A  reduction  in  rate  of  dividends  might  result  in  loss  of 
credit  and  inability  to  render  adequate  service,  which  would  be 
more  harmful  to  the  public,  as  well  as  to  the  stockholders,  than, 
a  delay  in  carrying  out  the  plan  of  amortization. 

Argument  Against.  The  Commission,  in  the  first  two  lines, 
already  is  given  discretional  power  respecting  the  application  of 
amortization  rules.  The  suggested  amendment  would  seem 
neither  materiallv  to  add  to  nor  detract  from  the  section. 


Section  io8. 

Suggestion.     The  section  should  be  eliminated. 

Argument  For.  In  connection  with  Sections  105  and  106 
this  section  leads  to  an  impossible  conclusion  in  authorizing  the 
Commission  to  determine  the  relative  amounts  of  stocks  and 
bonds  which  shall  be  issued.  See  also  Section  109.  If  the  stock 
of  a  company  on  the  market  is  worth  less  than  par,  no  amount 
of  persuasion  on  the  part  of  the  Commission  would  avail  to 
secure  new  financing  by  the  use  of  stock  issues  at  par.  Con- 
sideration of  these  sections  leads  to  the  conclusion  that  the  best 
results  will  be  obtained  by  authorizing  the  issue  of  stocks  and 
bonds  at  the  market  value,  rather  than  at  values  arbitrarily 
limited  to  par  in  case  of  stock  and  to  not  less  than  75  per  cent, 
of  par  in  the  case  of  bonds. 

Argument  Against.  The  less-than-par  value  of  outstanding 
stock  on  the  market  would  seem  to  be  one  of  the  considerations 
which  would  influence  a  determination  of  the  relative  amount 
of  stocks  and  bonds  which  should  be  outstanding.  It  is  not 
reasonable  to  suppose  that  the  bill  attempts  to  accomplish  the 
impossible. 

Sections  103,  119,  238. 

Suggestion.     Provisions  should  be  inserted  in  the  bill  qualifying 
or  limiting  the  right  to  declare  stock  dividends  or  to  divide  among 

87 


stockholders  the  proceeds  from  the  sale  of  stock,  at  least  after  liberal 
dividends  have  been  distributed. 

Argument  For.  Surplus  earnings  in  excess  of  reasonable  re- 
turns on  property  employed  in  the  public  service  should  be 
treated  as  funds  held  in  trust  for  the  benefit  of  the  service  and 
not  for  the  benefit  alone  of  stockholders.  While  the  State  has 
the  right  so  to  regulate  rates  as  to  limit  the  amount  of  surplus 
earnings,  such  regulation  necessarily  in  many  cases  is  imperfect. 
It  may  be,  and  frequently  is,  sound  public  policy  in  many  cases, 
however,  for  the  State  to  sanction  earnings  in  excess  of  require- 
ments for  reasonable  returns  by  refraining  from  exercising  its 
rate-fixing  powers.  Such  public  policy,  however,  is  founded 
not  on  the  needs  of  stockholders  but  on  the  needs  of  consumers 
and  the  public  at  large.  Reasonable  surpluses  strengthen  credit 
and  enable  service  to  be  developed  along  lines  which  add  to  the 
convenience  and  safety  of  the  public  and  which  might  be  deemed 
impracticable  if  they  required  new  financing.  Such  surpluses, 
however,  being  contributed  by  consumers,  should  not  subse- 
quently be  appropriated  for  the  exclusive  use  of  stockholders. 
Consequently,  the  bill  should  prohibit  the  declaration  of  stock 
dividends  where  earnings  have  been  sufficient  to  enable  fair 
returns  to  be  made  on  the  money  contributed  by  stockholders 
and  the  distribution  of  the  proceeds  of  stock  issues  made  to  re- 
plenish the  treasury  for  capital  expenditures  made  from  income 
in  excess  of  fair  returns. 

Argument  Against.  Granting  the  right  of  the  State  to  regu- 
late rates,  the  surplus  of  a  company  must  be  considered  as  be- 
longing to  the  stockholders.  Any  restriction  on  the  interest  in 
surplus  of  the  stockholders  constitutes  an  arbitrary  limitation 
on  the  benefits  of  investment  in  public  utility  enterprises  and 
renders  more  difficult  financing  of  such  enterprises.  The  public 
suffers  by  the  resulting  restriction  of  development.  Further- 
more, such  limitation  as  is  proposed  on  the  right  to  distribute 
the  corporate  surplus  among  stockholders  has  an  ex  post  facto 
effect  and  does  violence  to  fundamental  principles  of  justice. 
What  a  company  earns  belongs  to  the  stockholders.  If  the 
stockholders  see  fit  to  employ  surplus  earnings  in  the  business, 
they  have  a  right  to  do  so  but  their  temporary  appropriation  of 
surplus  profits  for  the  benefit  of  the  business  should  not  prejudice 
their  privilege  subsequently  to  withdraw  surplus  earnings  for 
their  own  use. 

88 


Sections  ioi,  103,  107,  109,  no. 

Suggestion.  Incorporate  in  the  article  an  express  provision 
authorizing  bond  issues  in  excess  of  immediate  requirements  and  the 
mortgaging  of  property  to  secure  the  fiill  amount,  subject  to  ap- 
proval by  the  commission  of  the  sale  of  any  part  of  such  bond  issues. 

Argument  For.  A  customary  means  of  financing  public 
utility  properties  is  to  mortgage  the  properties  in  excess  of  im- 
mediate requirements  under  plans  whereby  bonds  are  sold,  only 
as  funds  are  actually  required.  In  the  absence  of  express 
authorization,  the  bill,  as  it  stands,  might  be  construed  to  defeat 
this  plan  of  financing  by  preventing  the  mortgaging  of  property 
in  excess  of  immediate  requirements. 

Argument  Against.  Under  the  provisions  of  statutes  iden- 
tical with  the  provisions  of  this  bill,  the  plan  of  financing  sug- 
gested has  been  applied  repeatedly.  No  reason  appears  why 
such  a  plan  could  not  be  carried  out  under  this  bill.  This  plan 
of  financing  seems  in  no  wise  to  conflict  with  the  theory  of  the 
biU. 

Section  118. 

Suggestion.  Add  to  the  section  at  the  end  the  following:  "and 
any  amount  or  amounts  properly  spent  incidental  to  securing  such 
franchise,  right  or  privilege." 

Argument  For.  Without  the  proposed  amendment,  Section 
118  prevents  the  capitalization  of  expenditures  incidental  to 
secviring  any  franchise  other  than  the  amount  actually  paid  as 
a  consideration  for  the  granting  of  such  franchise.  The  neces- 
sary and  legitimate  expenditures  incurred  in  securing  franchises 
over  and  above  payment  made  to  the  City  or  State  amount  fre- 
quently to  a  very  material  sum  which  could  not  reasonably  be 
provided  from  the  earnings  of  the  year  in  which  the  franchise 
is  obtained.  Such  expenditirres  are  similar  to  legal  expenses, 
engineering  services  and  other  general  expenses  in  connection 
with  creating  the  property  of  the  utility  and  seem  to  be  equally 
a  proper  subject  for  capitalization. 

Argument  Against.  Franchises,  rights  and  privileges  are 
property.  Section  103  authorizes  in  sub-paragraph  (a)  the 
issue  of  stocks  and  bonds  when  necessary  and  reasonably  re- 
quired for  the  purpose  of  the  acquisition  of  property.     The  in- 

89 


cidental  expenses  referred  to  may  be  capitalized  under  the  pro- 
visions of  Section  103. 

Section  119. 
Suggestion,     (a)     Strike  out  this  section  entirely. 

Argument  For.  Under  this  section  many  consolidations  of 
distinct  advantage  to  the  public  would  be  prevented.  If  the 
consolidation  involved  a  shrinkage  in  the  total  amount  of  secur- 
ities outstanding,  it  probably  never  would  be  made,  no  matter 
what  its  advantages  might  be,  and  the  retirement  of  a  fractional 
^  part  of  the  outstanding  securities  involves  practical  difficulties. 
Owners  of  the  properties  would  be  reluctant  to  submit  to  a  cap- 
ital reduction  which  would  not  be  necessary  if  a  merger  were 
not  made.  Section  132  provides  that  no  merger  or  consolidation 
shall  be  made  until  an  order  shall  have  been  procured  from  the 
commission  approving  such  merger  or  consolidation.  Under 
this  section,  the  commission  has  full  control  over  the  details  of 
any  plan  for  consolidation  because  it  can  withhold  its  approval 
until  all  details  are  satisfactory.  The  interests  of  the  public 
seem  to  be  ftilly  protected  by  Section  132.  Section  119  seems 
unnecessary.  The  amount  of  securities  to  be  issued  in  case  of 
consolidation  should  be  left  to  the  judgment  of  the  commission, 
based  on  the  circiunstances  of  each  individual  case. 

Argument  Against.  The  attempted  exercising  by  the  com- 
mission under  Section  132  of  power  to  limit  the  amount  of  se- 
curities would  be  unconstitutional  because  of  the  absence  of  a 
specific  standard  prescribed  by  the  legislature  for  application  to 
such  cases.  The  commission  is  an  administrative  body.  It  ^s 
all. very  well  to  talk. of  leaving  matters  of  this  kind  to  the  judg- 
ment of  the  commission,  but  experience  has  demonstrated  that 
interested  parties,  who  are  not  pleased  with  the  judgment  of 
the  commission  when  it  is  exercised,  are  prone  to  seek  relief  from 
the  effects  of  such  judgment  by  attacking  in  the  courts  the 
constitutionality  of  the  supposed  delegation  of  authority.  In 
the  absence  of  a  definite  standard  prescribed  by  the  legislature, 
it  is  safe  to  assiune  that  the  commission  will  be  enabled  to 
exercise  no  control  whatsoever  over  the  amount  of  securities 
issued  in  case  of  consolidation  or  merger. 

Suggestion,     (b)     Strike  out  the  last  two  lines  and  substitute 
therefor  the  following:  "shall  not  exceed  the  par  value  of  the  out- 
go 


standing  stocks  and  bonds  of  the  public  utilities  parties  to  such 
merger  or  consolidation." 

Argument  For.  The  argument  in  behalf  of  this  suggested 
amendment  is  set  forth  in  the  dissenting  memorandum  of 
Messrs.  Bassett,  Gray  and  Maltbie  which  accompanies  the  bill. 

Argument  Against.  Value  should  be  recognized  in  consoli- 
dations, as  elsewhere,  as  the  basis  for  capitalization.  While  the 
value  standard  may  result  in  the  capitalization  of  surpluses  and 
unearned  increments,  it  is  not  to  be  denied  that  these  belong  to 
the  company  and  not  to  the  public.  The  alternative  rule  which 
makes  the  outstanding  securities  of  the  consolidated  companies 
the  measure  of  security  issues  on  consolidation,  results  in  per- 
petuating over-capitalization. 


Section  121. 

Suggestion.  Limit  this  section  and  Section  239  so  that  they 
may  not  be  construed  to  apply  to  the  impairment  of  capital  effected 
before  the  bill  becomes  law. 

Argument  For.  Such  legislation  as  is  contemplated  here 
should  be  content  to  draw  a  curtain  on  the  past  and  to  deal 
with  new  situations  as  they  arise,  solely  on  their  merits  regard- 
less of  early  indiscretions  or  misfortunes. 

Argument  Against.  The  relation  between  the  property  of  a 
public  utility  and  its  outstanding  securities  is  a  continuing  rela- 
tion. It  is  not  so  closely  identified  with  the  act  or  series  of  acts 
from  which  it  results  as  to  make  retroactive  legislation  designed 
to  correct  such  relation  after  it  becomes  existent.  The  legisla- 
tion deals  with  the  condition  that  exists  and  not  with  the  cause 
,  of  that  condition.  If  the  condition  is  such  as  to  impair  the 
abihty  of  the  company  to  perform  its  primary  duties,  the  con- 
dition should  be  corrected. 


Section  151. 

Suggestion.  Insert  after  the  word  "reasonable"  in  the  second 
line  the  words:  "taking  into  account  the  adequacy  of  such  rates  and 
the  requirements,  obligations  and  necessities  of  the  public  served 
and  of  the  public  utility." 

91 


Argument  For.  The  words  "just  and  reasonable,"  without 
further  explanation,  are  incomplete  and  will  be  interpreted  in 
many  cases  in  a  manner  harmful  to  the  public  as  well  as  to  in- 
vestors. Rate  regulation  frequently  fails  to  give  proper  con- 
sideration to  adequacy  as  an  important  element  of  reasonable- 
ness. Inadequate  rates  must  result  in  inadequate  and  unsatis- 
factory service.  Competition  is  still  free  and  unhampered  in 
the  investment  of  money.  An  investor  will  not  furnish  capital 
to  a  utility  which  is  charging  inadequate  rates  when  there  are 
plenty  of  other  utilities  or  other  forms  of  investment  from  which 
he  can  obtain  an  adequate  return.  The  act  in  its  present  form 
helps  to  perpetuate  a  mistaken  point  of  view  with  reference  to 
adequacy,  for  it  provides  for  adequate  service  without  any 
qualification  or  limitation  with  heavy  penalties  for  failure,  and 
refuses  to  recognize  or  provide  for  adequacy  as  one  of  the  ele- 
ments in  determining  the  reasonableness  of  rates.  The  bill 
should  make  clear  that  adequacy  is  an  element  and  the  import- 
ance of  a  definite  recognition  of  adequacy  in  the  bill  is  empha- 
sized by  the  fact  that  the  courts  have  recognized  the  distinction 
between  inadequate  and  confiscatory  rates. 

Argument  Against.  The  rule  of  justness  and  reasonableness 
is  the  common  law  rule.  It  includes  adequacy  and  every  other 
element  of  rate  reasonableness.  The  rule  is  as  broad  as  any 
rule  could  be.  It  is  broader  than  the  rule  proposed  for  the  reason 
that  the  specification  of  one  element  of  justness  and  reasonable- 
ness, namely,  adequacy,  may  be  construed  to  exclude  other 
elements.  In  a  nimiber  of  jurisdictions,  commissions,  in  apply- 
ing substantially  identical  rules,  have  authorized  the  increase 
of  rates.  The  Interstate  Commerce  Commission  recently  has 
authorized  a  general  increase  of  freight  rates  in  certain  localities 
under  a  substantially  similar  rule.  There  can  be  no  question 
about  the  legal  effect  of  the  term  "just  and  reasonable."  This 
term  is  employed  in  all  of  the  sections  of  the  bill  which  confer 
authority  on  the  commission  to  deal  with  rates.  (See  Sections 
77,  80,  157,  159,  162.) 

A  positive  objection  to  the  use  of  the  language  suggested 
lies  in  the  apparent  broadening  of  the  scope  of  judicial  re- 
view which  would  result.  The  denial  of  an  adequate  rate 
by  the  commission  does  not  ordinarily  defeat  the  legality  of 
rates  fixed  by  the  commission.  With  the  rule  changed  so  as 
to  specify  adequacy  as  one  of  the  elements  of  reasonableness.' 
it  is  likely  that  the  courts  would  assume  jurisdiction  of  the 

92 


determination  of  what  constitutes  adequacy  in  a  particular  case. 
This  is  not  desirable. 


Section  157. 

Suggestion.  Add  to  the  section  a  new  sentence,  as  follows: 
"No  change  shall  be  made  in  any  rate  until  authority  therefor  shall 
have  been  obtained  from  the  Commission." 

Argument  For.  The  commission  should  be  consulted  about 
every  new  rate  that  goes  into  effect;  otherwise  its  work  will  not 
be  effective.  The  damage  caused  by  unjust,  unreasonable  or 
discriminatory  rates  cannot  be  completely  remedied.  Preven- 
tion is  better  than  cure.  It  is  true  that  Section  158  authorizes 
the  commission  to  suspend  the  operation  of  new  schedules  for 
a  limited  period  pending  an  investigation.  This  section,  how- 
ever, is  likely  to  place  the  commission  in  a  bad  light  because 
of  its  requirement  that  the  commission  take  the  initiative  in 
an  investigation.  Besides,  the  time  limitation  may  not  be 
adequate  in  all  cases.  Furthermore,  the  proposed  amendment 
relieves  the  public  utilities  from  all  possible  criticism  that  might 
arise  from  changes  in  rate  schedules. 

Argument  Against.  Few,  if  any,  of  the  commissions  have 
the  facilities  to  enable  them  expeditiously  to  examine  and 
pass  upon  new  rate  schedules  as  they  are  filed.  An  effective 
organization  for  this  purpose  could  be  maintained  only  at  a 
prohibitive  cost.  Because  of  the  slowness  of  the  commission 
machinery,  rate  schedules  would  tend  to  become  rigid  and  fail 
to  respond  to  changes  in  public  requirements.  Regulation 
is  not  management  and  the  public  utilities  should  not  be  re- 
lieved of  their  duty  of  fixing  rates  in  the  first  instance.  Re- 
sponsibility for  the  conduct  of  public  utility  enterprises  should 
be  left  with  the  utilities  themselves  subject  only  to  supervision 
and  the  exercise  of  mandatory  powers  in  cases  of  necessity. 


Section  162. 

Suggestion.     Strike  out  this  section. 

Argument  For.  No  public  utility  shovdd  be  subjected  to 
two  investigations  regarding  the  same  subject  matter  of  com- 
plaint— the  first  investigation  by  a  State  commission  and  the 
second  by  a  Federal  commission. 

93 


Argument  Against.  Under  the  established  separation  of 
State  and  Federal  jurisdiction  in  the  regulation  of  interstate 
public  utilities,  it  is  an  entirely  proper  function  of  a  state  Com- 
mission to  present  to  the  Federal  commission  matters  which 
seem  to  the  State  commission  to  require  remedying  but  which 
it  has  not  the  power  to  affect. 


Section  201. 

Suggestion.  Insert  after  the  word  "safe",  in  the  second  hne, 
the  words  "in  so  far  as  the  public  utility  is  reasonably  able  to  furnish 
such   service  and  facilities." 

Argument  For.  Taken  literally,  the  section  as  now  worded 
cannot  be  enforced.  The  services  and  facilities  of  a  public 
utility  cannot  be  made  absolutely  safe  by  any  known  means 
and  cannot  permanently  be  adequate  if  rates  are  inadequate. 
The  requirement  of  adequacy  and  safety  shoiild  be  qualified 
either  in  the  manner  suggested  or  by  the  use  of  the  word  "reason- 
ably." Both  adequacy  and  safety  are  relative  terms  and  the 
statute,  by  recognizing  them  to  be  such,  should  avoid  the  danger 
of  making  public  utilities  insurers  of  the  safety  of  their  plant 
and  equipment  on  the  one  hand,  and  responsible  for  providing 
the  highest  standards  of  service  on  the  other  hand. 

Argument  Against.  The  rule  of  service,  adequacy  and  safety 
is  the  common  law  rule.  It  has  been  recognized  and  apphed 
for  many  years  and  the  dire  results  predicted  for  this  section, 
if  enacted  into  law,  have  not  been  experienced.  If  this  section 
were  adopted  in  a  State  whose  courts  have  interpreted  the  words 
"adequate"  and  "safe,"  to  require  absolute  standards  of  per- 
fection, it  might  be  well  to  qualify  the  requirement  somewhat 
in  the  manner  suggested. 


Section  210. 

Suggestion.     After  the  words  "public  utility"  in  line  six,  insert 
the  words  "with  which  it  is  not  or  will  not  be  in  competition." 

Argument  For.     This  section  if  enacted  would  constitute  a 
serious  menace  to  the  business  and  perhaps  to  the  solvency  of 

94 


existing  corporations.  It  would  open  the  door  for  the  irrespon- 
sible promoter  by  fiirnishing  facilities  which  would  otherwise 
not  be  obtainable  except  by  raising  the  capital  necessary  to  the 
purchase  and  installation  thereof.  If  a  new-comer  should  offer 
to  furnish  service  in  a  restricted  area  of  an  existing  company's 
territory  at  a  price  very  much  below  that  necessarily  charged 
by  the  existing  public  utility,  it  is  hardly  to  be  expected  that  a 
public  service  commission  would  surely  withstand  the  pressure  of 
public  opinion  in  favor  of  an  application  for  authority  on  the 
part  of  the  new-comer  to  use  the  conduits,  poles,  lines  or  other 
facilities  of  the  existing  company  in  such  area.  Such  an  inroad 
on  the  existing  company's  business  would  result  in  serious  losses 
and  would  materially  diminish  the  ability  of  the  existing  utility 
to  furnish  adequate  service  at  reasonable  rates  in  its  territory 
outside  the  invaded  area.  The  proposed  amendment  restricts 
the  operation  of  the  joint  provision  for  joint  use  of  facilities  to 
companies  which  are  not  or  will  not  be  in  competition. 

Argument  Against.  This  section  is  and  should  be  considered 
an  undivided  part  of  an  entire  bill.  One  of  the  abuses  aimed 
at  in  the  bill  is  ruthless  competition  such  as  that  described  in 
the  argument  for  the  proposed  amendment.  Sections  272-275 
are  designed  to  prevent  the  establishment  of  unnecessary  and 
wasteftil  competition.  This  section  aims  at  an  abuse  which  is  all 
too  frequent  in  many  cities.  This  is  the  unnecessary  duplication 
of  facilities  in  streets  and  highways  which  results  not  only  in 
unsightliness  but  in  public  discomfort  and  danger.  Where  com- 
peting companies  are  established  in  the  same  territory,  it  is  not 
unreasonable  to  require  them  in  the  general  interest  to  use  the 
same  conduits  and  the  same  poles  and  tracks  in  the  public  streets. 

Section  210  as  it  stands  contains  a  number  of  limitations 
which  should  protect  every  proper  interest.  The  facilities  pro- 
posed to  be  used  jointly  must  be  "along  any  street  or  highway 
whether  on,  over  or  under  such  street  or  highway."  The  joint 
use  must  not  prevent  the  owner  or  other  users  thereof  from 
performing  their  public  duties.  It  must  not  result  in  serious 
injury  to  such  owner  or  other  users.  No  substantial  detriment 
to  the  service  of  the  owner  or  other  users  shall  result.  No 
danger  to  the  public  or  to  employees  must  occur.  Before  the 
section  can  be  applied,  all  of  these  conditions  must  be  found  by 
the  commission  to  exist.  It  is  not  reasonable  to  suppose  that 
a  provision  so  hedged  about  by  safeguards  will  be  abused. 


95 


Section  211.* 

*  Note.  Objection  has  been  made  to  this  section  similar  to  that 
directed  to  Section  210.  The  chief  alternative  that  has  been  pro- 
posed, however,  left  the  determination  of  the  joint  use  or  physical 
connection  to  the  company  owning  the  facilities  sought  to  be  used. 
This  would  seem  to  involve  no  element  of  regulation  but  simply  to 
state  what  is  common  practice  among  telephone  companies — namely, 
that  physical  connections  be  made  when  and  as  agreements  are 
arrived  at  between  the  owners  of  telephone  properties  capable  of 
physical  connection.  There  would  seem  to  be  good  reason,  subject 
to  the  safeguards  or  limitations  found  in  this  section,  to  require 
telephone  companies  which  have  monopolies  in  particular  areas  or 
between  particular  localities  to  throw  open  these  facilities  to  com- 
panies capable  of  effecting  physical  connections.  It  should  be 
observed  that  the  commission  is  authorized  specifically  to  fix  the 
charge  which  shall  be  made  to  the  public  for  the  use  of  continuous 
lines  resulting  from  physical  connection. 


Section  230. 
Suggestion.     See  Section  15. 

Sections  235-239. 

Suggestion,  (a)  Substitute  for  these  sections  the  following: 
"Every  public  utility  shall  make  such  reasonable  provision  for  the 
replacement  and  renewal  of  its  property  necessary  to  enable  it  to 
maintain  the  adequacy,  efficiency  and  quality  of  its  service.  The 
commission  may  prescribe  rules,  regulations  and  forms  of  account 
regarding  such  provision  for  replacement  and  renewal  of  property 
which  public  utilities  shall  carry  into  effect.  Such  rules,  regulations 
and  forms  of  account  may  be  general  or,  at  the  discretion  of  the 
commission,  may  be  special  to  apply  to  the  conditions  of  any  public 
utility  or  class  of  public  utilities.  The  commission  may  in  its  dis- 
cretion ascertain  and  determine  and  by  order  fix  the  proper  and 
adequate  amounts  to  be  provided  for  replacement  and  renewal  on 
the  several  classes  of  property  of  each  public  utility  or  on  its  property 
as  a  whole.  Amounts  so  fixed  may  be  modified  from  time  to  time 
by  the  commission  on  its  own  initiative  or  after  hearing  on  applica- 
tion by  the  utility  requesting  a  modification  of  such  amount.  The 
moneys  set  aside  by  a  public  utility  for  replacement  and  renewal  of 

96 


property  may,  with  the  approval  of  the  commission,  be  invested, 
until  required  for  this  purpose,  in  the  stocks,  bonds,  notes  or  other 
evidences  of  indebtedness  of  the  utility  or  used  for  such  other  pur- 
poses and  under  such  rules  and  regulations  as  the  commission  may 
from  time  to  time  prescribe." 

Argument  For.  The  sections  in  their  present  form  abso- 
lutely require  every  public  utility  to  carry  a  proper  and  adequate 
depreciation  account  which,  in  the  light  of  recent  court  and 
commission  decisions,  clearly  means  a  depreciation  reserve 
necessary  to  offset  all  theoretical  depreciation  which  has  taken 
place  in  the  property.  This  has  not  been  the  practice  of  public 
utilities  in  the  past,  is  entirely  unnecessary  and  would  be  im- 
possible to  carry  out  in  the  case  of  many  existing  utilities.  Even 
where  possible,  it  would  involve  a  needless  increase  in  rates  now 
charged  or  a  postponement  of  a  decrease  in  rates.  A  public 
utility  must  make  reasonable  provision  for  the  replacement  and 
renewal  of  parts  of  its  property  whenever  this  becomes  necessary 
to  maintain  a  proper  quality  and  efficiency  "of  service,  but  this 
is  an  entirely  different  matter  from  providing  a  fund  to  offset 
all  theoretical  depreciation.  Many  public  utilities  make  ade- 
quate provision  for  replacements  and  renewals;  none,  so  far  as 
we  know,  are  attempting  to  provide  a  fund  to  ojffset  theoretical 
depreciation. 

Argument  Against.  We  know  of  no  one  who  professes  to 
have  said  the  last  word  on  the  subject  of  depreciation.  Whether 
"depreciation"  means  so-called  theoretical  depreciation  or 
merely  provision  for  replacements  and  renewals,  the  bill  does 
not  attempt  to  say.  Substantially,  the  language  of  the  bill  has 
been  applied  with  apparent  success  over  a  period  of  years  by  a 
number  of  commissions  in  a  number  of  States.  The  sections  in 
question  are  the  joint  product  of  a  niimber  of  experts  represent- 
ing commission  and  corporation  experienfce  under  substantially 
similar  provisions  of  law.  These  sections  establish  definite  and 
specific  general  standards  for  the  guidance  of  a  commission  in 
dealing  with  the  necessarily  complex  and  intricate  problem  of 
depreciation  in  general.  The  proposed  substitutes  would  seem 
to  be  open  to  criticism  on  the  score  that  they  do  not  contem- 
plate providing  for  property  which  is  worn  out,  superseded  or 
destroyed  and  never  replaced  or  renewed.  The  fundamental 
purpose  of  a  depreciation  account  seems  to  be  to  keep  a  con- 
tinuing and  accurate  balance  between  property  values  and  the 
amounts  at  which  they  are  entered  in  books  of  account.     Mani- 

97 


festly,  it  would  be  absurd,  in  the  case  of  a  going  concern,  so  to 
apply  these  sections  as  to  accomplish  over  a  period  of  years  by 
regular  deductions  from  earnings  the  creation  of  a  fund  held 
intact  equalling  the  original  cost  of  the  property. 


Sections  235-239 — Contd. 

Suggestion,  (b)  In  every  case  where  the  word  "depreciation" 
occurs,  insert  thereafter  the  words  "and  obsolescence." 

A  rgument  For.  Obsolescence  is  a  factor  in  the  depreciation 
of  property  values.  The  elements  of  obsolescence  do  not  cor- 
respond in  all  respects  with  the  elements  of  depreciation.  In 
some  of  the  public  utility  businesses  obsolescence  is  a  more  im- 
portant cost  factor  than  depreciation.  This  is  particularly  true 
of  the  telephone  business  in  which  such  articles  of  equipment  as 
switch  boards  have  repeatedly  been  discarded  long  before  they 
reached  the  end  of  their  useful  lives  because  of  improvements 
in  the  art. 

Argument  Against.  The  tenor  of  commission  and  court  de- 
cisions leaves  little  doubt  that  the  term  depreciation  is  used 
ordinarily  in  such  cases  generically  to  denote  loss  in  value  whether 
due  to  wear  and  tear,  natural  causes,  improvements  in  the  art, 
or  what  not.  Under  these  circumstances  it  is  difficult  to  perceive 
what  useful  purpose  will  be  served  by  attempting  to  differen- 
tiate between  depreciation  and  obsolescence  in  this  bill. 

Suggestion,  (c)  Add  the  following  provision  to  Section  237: 
"No  order  shall  be  entered  by  the  commission  under  the  provisions 
of  this  section  until  a  public  hearing  shall  have  been  held,  of  which 
the  public  utilities  concerned  shall  have  been  given  notice." 

Argument  For.  The  determination  of  depreciation  rates  may 
have  a  vital  effect  on  the  public  utilities  to  which  the  rates  are 
made  to  apply.  The  chief  danger  is  that  rates  will  be  fixed 
at  so  high  a  point  that  companies  may  be  obliged  to  discontinue 
or  change  materially  policies  on  which  depend  the  maintenance 
of  their  credit.  Companies  should  be  afforded  an  opportunity 
at  least  to  be  heard  in  opposition  to  any  such  proposed  order 
involving  a  radical  change  in  their  financial  arrangements. 

Argument  Against.  Experience  has  not  justified  the  implied 
criticism  of  the  practical  operation  of  commission  loss.     The 

98 


very  nature  of  depreciation  negatives  the  supposition  that 
commissions  -will  attempt  to  prescribe  uniform  rates  of  depre- 
ciation for  all  utilities  of  the  same  or  different  kinds.  Failure 
to  recognize  the  need  of  protecting  the  integrity  of  capital 
accounts  leads  inevitably  in  the  long  run  to  financial  ruin.  This 
is  directly  opposed  to  the  best  interests  of  the  public  or 
of  bona  fide  investors.  In  considering  rates  of  depreciation  on 
the  properties  of  any  company,  the  commission  would  be  obliged 
to  look  to  the  company  for  the  necessary  information.  Utilities 
necessarily  would  be  advised  in  this  way  that  the  commission 
was  considering  the  subject.  Maintaining  the  integrity  of 
capital  accounts  is  a  matter  of  so  great  importance  that  no  un- 
necessary restraints  should  be  placed  on  the  action  of  the  com- 
mission. 

Sections  272-274. 

Suggestion.  Substitute  the  following  sections  for  those  of  the 
same  numbers  in  the  bill: 

272.  Certificate  Before  Furnishing  Service.  No  public  utility 
shall,  after  this  act  goes  into  effect,  furnish  service  in  this  State  or 
begin  the  construction  of  any  plant  or  facility  therefor  in  the  public 
streets  until  it  shall  have  obtained  a  certificate  from  the  commission 
that  public  convenience  and  necessity  require  the  furnishing  of  such 
service  or  the  construction  of  such  plant  or  facility;  but  the  require- 
ments of  this  section  shall  not  apply  to  any  public  utility  which  is 
furnishing  service  or  which  has  any  plant  or  facility  for  the  furnishing 
of  service  under  construction  at  the  time  this  act  goes  into  effect. 

273.  Certificate  for  Service.  No  public  utility  shall,  after  this  act 
goes  into  effect,  furnish  any  service  of  a  different  kind  or  class  than 
that  previously  furnished  by  it,  or  furnish  any  service  in  a  place  or 
territory  other  than  that  in  which  it  shall  previously  have  operated, 
or  exercise  any  right  or  privilege  under  any  franchise  or  permit 
theretofore  granted  but  not  theretofore  actually  exercised  or  the 
exercise  of  which  has  been  suspended  for  more  than  one  year,  until 
it  shall  have  obtained  a  certificate  from  the  commission  that  public 
convenience  and  necessity  require  the  furnishing  of  such  service; 
but  the  provisions  of  this  section  shall  not  prevent  any  public  utility 
from  furnishing  service  from  any  plant  or  facility  which  is  being  con- 
structed at  the  time  this  act  goes  into  effect 

274.  Certificate  of  Convenience  and  Necessity.  Whenever  after 
hearing  the  commission  determines  that  any  new  construction  or 

99 


the  furnishing  of  any  new  service  by  a  public  utility  as  provided  in 
the  two  preceding  sections  will  promote  the  public  convenience  and 
necessity  it  shall  have  the  power  to  issue  a  certificate  to  that  effect, 
and  in  such  certificate  may  define  the  kind  or  class  of  service  and 
the  area  in  which  it  may  be  supplied,  and  may  limit  and  define  the 
territory  in  which  such  construction  may  be  made. 

Argument  For.  The  original  Section  272  operates  as  a  pro- 
hibition against  all  new  work  or  extensions  by  existing  companies. 
It  should  be  made  to  apply  only  to  new  public  utilities.  Sec- 
tions 272  and  273  are  amended  to  except  from  their  operation 
utilities  which  have  begun  construction  but  are  not  furnishing 
service  when  the  act  goes  into  effect.  The  amendment  to  Sec- 
tion 274  brings  this  section  in  conformity  to  Sections  272  and 
273  as  amended. 

Argument  Against.  Literally  construed.  Section  272  prob- 
ably is  susceptible  of  the  interpretation  placed  upon  it  by  the 
objection.  The  accompanying  sections,  however,  indicate  the 
fallacy  of  such  an  interpretation.  Legislation  is  to  be  construed 
in  the  light  of  the  purpose  sought  to  be  effected,  and  when  the 
purpose  is  clear,  as  here,  it  may  safely  be  assimied  that  com- 
missions and  courts  will  find  a  reasonable  meaning.  The  pro- 
posed substitute  for  Section  272  is  open  to  the  objection  that  it 
applies  only  to  public  utilities  which  come  into  existence  after 
the  act  takes  effect.  The  revised  Section  273  as  proposed  does 
not  operate  effectively  to  restrict  the  operations  of  public  util- 
ities existing  at  the  time  the  law  is  enacted  because  of  the  in- 
definiteness  of  the  expression  "in  a  place  or  territory  other  than 
that  in  which  it  shall  previously  have  operated."  This  expres- 
sion, used  in  an  abbreviated  form  in  the  revised  Section  273,  is 
given  a  definite  meaning  by  the  relationship  established  be- 
tween the  place  and  territory  and  the  franchise  or  permit. 
The  original  sections  place  an  emphatic  embargo  on  "new" 
services  and  "new"  construction,  in  the  case  of  all  companies 
(Section  272)  and  on  the  use  of  unexercised  franchises  (Section 
273).  The  proposed  substitutes  are  open  to  the  further  objec- 
tion that  they  become  operative  only  at  the  time  the  act  goes 
into  effect,  while  the  original  sections  operate  from  the  day  the 
law  is  enacted.  When,  as  is  frequently  the  case,  a  consider- 
able period  intervenes  between  the  enactment  of  the  law  and 
its  effective  date,  some  opportunity  for  evasion  may  be  afforded 
by  holding  such  provisions  as  these  in  abeyance. 


100 


Sections  277-289. 

Suggestion.    Strike  out  these  sections. 

Argument  For.  It  is  outside  the  province  of  a  bill  for  the 
regulation  of  public  utilities  to  deal  with  the  manner  of  granting, 
regulating  and  extinguishing  franchise  rights.  This  subject 
should  be  dealt  with,  if  at  all,  in  a  separate  bill.  Its  treatment 
here  fails  to  do  justice  to  the  larger  relations  between  the  muni- 
cipality and  the  State.  These  objections  are  discussed  at  greater 
length  in  the  dissenting  memorandum  attached  to  the  bill  of 
Messrs.  Bassett,  Gray  and  Maltbie. 

Argument  Against.  Franchise  relations  have  been  a  prime 
source  of  annoyance  to  public  utilities  and  to  the  public.  They 
have  resulted  at  times  in  less  satisfactory  service  and  higher 
rates  than  would  be  possible  with  rational  adjustments  of  the 
franchise  subject.  This  bill  recognizes  the  public  nature  of  the 
duties  of  these  companies  and  the  inherent  right  of  the  public 
to  regulate  their  conduct.  The  same  measure  should  recognize 
and  put  an  end  to  the  franchise  problem.  The  indeterminate 
franchise  is  the  best  arrangement  that  has  been  devised.  It 
secures  to  a  company  uninterrupted  enjoyment  of  the  right  to 
operate  during  good  behavior,  while  reserving  the  right  of  the 
public  to  determine  the  franchise  at  will  by  purchasing  the 
property  employed.  No  plan  of  regulation  is  complete  which 
does  not  contemplate  removing  the  evils  of  short-term  franchises. 


Section  277. 

Suggestion.  In  line  six,  after  the  word  "provide,"  insert  the 
word  "specifically."  In  line  seven,  after  the  word  "municipality," 
insert  the  words  "at  some  definite  date." 

Argument  For.     The  purpose  of  the  proposed  amendment  is 
to  clarify  the  meaning  of  the  section. 

Argument    Against.     The    suggested  amendment    seems  to 
conform  to  the  purpose  of  the  section  and  is  not  objectionable. 


Section  278. 

Suggestion,  (b)  Strike  out  the  last  sentence  which  reads  as 
follows:  "A  franchise  so  obtained,  however,  shall  be  subject  to 
alteration,  amendment  or  repeal  by  act  of  the  legislature." 

lOI 


u^ 


Argument  For.  This  sentence  seems  to  defeat  the  whole 
purpose  and  intent  of  the  indeterminate  franchise  provisions, 
which  are  to  procure  wherever  possible  the  consent  of  the  utility 
to  the  purchase  of  its  property  at  any  time  by  the  municipality 
in  consideration  of  receiving  an  indeterminate  franchise  in  place 
of  a  term  franchise.  A  public  utility  could  not  afford  to  give 
up  a  term  franchise  for  a  franchise  subject  to  alteration,  amend- 
ment or  repeal  at  any  time  by  act  of  the  legislature.  It  is  well 
known  that  the  constitutions  and  laws  of  some  States  reserve 
the  power  of  alteration,  amendment  or  repeal  of  all  charters. 
In  other  States,  it  seems  to  be  established  that  this  power 
is  somewhat  qualified  so  that  the  action  can  not  be  entirely 
arbitrary.  It  appears  further  that  the  power  of  repeal  con- 
tained in  existing  laws,  while  it  may  be  used  to  terminate  the 
charter  or  franchise  to  be  a  corporation,  cannot  arbitrarily  be 
used  to  terminate  the  rights  in  the  street,  or  the  franchise  to 
operate,  without  providing  in  some  form  or  other  for  recompense 
to  the  utility  for  the  damages  which  it  suffers  through  some 
action.  It  seems  evident  that  the  courts  would  hold  that  a 
utility  accepting  an  indeterminate  franchise  under  this  section 
had  expressly  assented  to  the  withdrawal  of  all  its  rights  and 
that  it  would  have  no  recourse  from  the  action  of  the  legislature 
amending  or  repealing  the  franchise  no  matter  how  arbitrary 
or  unreasonable  such  action  might  be.  The  provision  is  not 
only  impracticable  but  it  contradicts  and  is  inconsistent  with  the 
fundamental  principle  of  an  indeterminate  franchise. 

Argument  Against.  It  is  self-evident  that  a  franchise  is 
worthless  for  the  promotion  of  the  public  welfare  which  does 
not  extend  full  protection  to  the  bona  fide  investments  made 
thereunder.  It  may  be  admitted  frankly  that  the  courts  have 
not  arrived  at  a  uniform  interpretation  of  the  reserve  clauses  in 
the  constitutions  and  statutes  of  the  several  States.  It  may 
also  be  admitted  with  the  same  degree  of  frankness,  that  public 
policy  no  longer  sanctions  the  granting  of  rights  in  streets  and 
public  places  on  a  basis  which  assumes  to  prejudge  conditions 
which  may  arise  in  the  future.  Violation  of  the  first  assumption, 
naturally,  will  put  a  stop  to  investment.  Violation  of  the 
second  assumption  is  likely  to  produce  in  years  to  come  a  con- 
dition under  which  the  State  will  be  obliged  to  resort  to  indirect 
methods  to  accomplish  that  which  it  has  surrendered  its  rights 
to  accomplish  directly.  The  most  that  can  be  said  for  the  pro- 
vision of  this  section  to  which  objection  is  made,  is  that  the 

I02 


State  should  reserve  to  itself  in  the  granting  of  indeterminate 
franchise  rights  the  fullest  measure  of  freedom  in  dealing  with 
future  conditions  as  they  arise  consistent  with  the  inviolability 
of  bona  fide  investment  induced  by  such  indeterminate  fran- 
chises. In  its  application  to  particular  jurisdictions  this  pro- 
vision should  be  scrutinized  carefully  with  respect  to  its  effect 
on  property  rights  under  the  local  interpretation  of  reserved 
powers. 

Suggestion,  (c)  Add  to  the  section,  the  following:  "A 
franchise  so  obtained  shall  be  not  limited  in  time  but  shall  continue 
in  force  until  such  time  as  the  municipality  shall  exercise  its  right  to 
acquire,  as  provided  in  this  act,  or  until  it  shall  be  otherwise  ter- 
minated according  to  law." 

Argument  For.  It  seems  to  have  been  the  intention  of  the 
framers  of  the  bill  that  Section  277  in  defining  the  duration  of 
future  grants  should  apply  to  indeterminate  franchises  sub- 
stituted for  term  grants  under  the  provisions  of  Section  278. 
Section  277,  however,  is  limited  to  grants  made  by  municipal- 
ities and  seems  not  to  be  applicable  to  the  indeterminate  fran- 
chise arising  from  the  operation  of  Section  278.  It  becomes 
necessary,  therefore,  to  state  specifically,  in  connection  with 
Section  278,  the  nature  of  the  franchise  substituted  for  the  term 
franchise  with  respect  to  its  duration.  This  is  the  purpose  of 
the  proposed  amendment  which  follows  the  similar  provision 
of  Section  277. 

Argument  Against.  The  suggestion  seems  to  be  well  made 
and  to  require  incorporation  in  the  bill. 


Section  279. 

Suggestion.  Strike  out  the  words  "for  the  just  compensation 
and  under  the  terms  and  conditions  of  purchase  and  sale  determined 
by  the  commission"  and  insert  in  place  thereof  the  words,  "for  the 
just  compensation  and  the  damages,  if  any,  and  under  the  terms  and 
conditions  of  purchase  and  sale  determined  in  the  manner  herein- 
after provided." 

Argument  For.  The  section  appears  to  be  in  conflict  with 
Section  286.  By  requiring  a  public  utility  to  agree  to  the  tak- 
ing of  its  property  for  just  compensation  and  under  terms  and 
conditions  "determined  by  the  commission,"  Section  286  pro- 

103 


vides  for  an  appeal  from  the  determination  of  the  commission. 
With  regard  to  the  proposed  insertion  of  the  words  "and  the 
damages,  if  any,"  see  the  summary  of  arguments  in  favor  of 
amendments  proposed  to  Section  285. 

Argument  Against.  Sections  286-289  <io  not  authorize  the 
court  on  appeal  from  a  determination  of  the  commission  to  fix 
either  the  compensation  or  the  terms  and  conditions  of  purchase 
and  sale.  The  transaction  is  consummated,  if  at  all,  on  the 
basis  of  the  just  compensation  and  terms  and  conditions  deter- 
mined by  the  commission.  Consequently,  there  seems  to  be  no 
inconsistency  between  this  section  and  Section  286. 


Section  280. 

Suggestion,  (a)  Amend  paragraph  (e)  by  inserting  after  the 
word  "service"  at  the  end  of  line  two  the  words  "or  for  municipal 
purposes  only." 

Argument  For.  A  municipal  plant  for  street  lighting  or 
other  municipal  uses  only,  will  result  in  most  cases  in  needless 
duplication  without  financial  or  other  gain  to  the  city.  The 
public  are  entitled  to  protection  in  this  matter  as  in  others. 

Argument  Against.  There  may  be  a  measure  of  doubt  as 
to  whether  the  non-duplication  provisions  apply  to  a  plant 
constructed  by  a  city  to  perform  strictly  municipal  services, 
such  as  the  lighting  of  streets  and  public  places  and  the  fur- 
nishing of  power  for  municipal  departments.  In  Wisconsin, 
whose  legislation  on  this  subject  was  a  model  to  a  large  degree 
for  the  provision  in  question,  the  interpretation  seems  to  be  that 
municipalities  may  not  construct  facilities  for  purely  municipal 
purposes  without  obtaining  authority  from  the  commission. 

Suggestion,  (b)  Amend  paragraph  (e)  of  this  section  by  add- 
ing at  the  end  of  the  section  the  following:  "And  no  municipality 
shall  hereafter  enter  upon  the  original  construction  of  any  municipal 
plant  for  use  in  supplying  public  utility  service  to  others,  without 
first  taking  by  condemnation,  purchasing  by  agreement  or  offering 
to  purchase  under  the  terms  of  this  act  the  plant  and  property  of 
such  public  utility  engaged  in  such  service." 

Argument  For.  The  bill  at  present  requires  a  public  utility 
to  sell  its  property  to  the  city  whenever  the  city  desires  to  buy, 

104 


but  it  allows  the  city  after  obtaining  a  certificate  of  convenience 
and  necessity  to  enter  into  competition  with  the  privately  owned 
utility.  This  is  not  just  nor  equitable.  Competition  between 
a  municipal  and  a  private  plant  can  never  be  fair  and  even. 
Burdens  are  imposed  on  the  private  utility  which  are  not  applied 
to  the  municipal  plant.  Taxes  paid  by  the  private  plant  may 
be  used  to  build  up  and  strengthen  the  municipal  plant.  In 
this  way  the  private  plant  may  be  forced  to  contribute  to  its 
own  destruction.  This  is  unfair  and  destructive  competition 
which  public  sentiment  ordinarily  condemns.  The  federal  gov- 
ernment has  given  much  consideration  to  laws  for  the  punish- 
ment of  unfair  and  destructive  competition.  The  establish- 
ment of  a  municipal  plant,  without  offering  to  purchase  at  a 
fair  price  the  property  of  a  public  utility  rendering  similar  ser- 
vice would  seem  to  be  an  act  of  the  same  general  character  as 
those  which  are  so  generally  condemned.  A  city  may  be  sub- 
ject to  even  greater  condemnation  because  the  community  has 
encouraged  investment  in  the  private  utility,  and  perhaps  has 
been  served  and  benefited  by  it  for  many  years.  Altogether 
apart  from  the  question  of  justice  and  equity,  however,  muni- 
cipal competition  is  uneconomical  and  wasteful.  The  burden 
must  ultimately  fall  on  the  consumer.  If  the  investor  is  re- 
quired to  take  the  risk  of  this  menace  he  will  require  a  higher 
rate  of  pay  for  his  capital.  Massachusetts  for  many  years  has 
required  municipalities  to  purchase  the  property  of  private 
utilities  before  establishing  mimicipal  plants.  The  requirement 
of  the  city  to  obtain  a  certificate  of  public  convenience  and 
necessity  is  not  strong  enough  to  ensure  purchase  of  the  private 
plant  and  prevent  the  possibility  of  competition.  If  it  were 
there  cotdd  be  no  objection  to  providing  specifically  in  the  bill 
for  the  purchase  of  the  private  utility  before  the  municipal  plant 
is  started. 

Argument  Against.  The  objection  strikes  at  the  heart  of  a 
community's  right  to  provide  for  its  citizens  services  which  are 
essentially  public  in  character.  Competition  admittedly  is  un- 
economical and  wasteftd.  This  conclusion  necessarily  is  founded, 
however,  on  the  premise  that  the  existing  agency  is  discharging 
its  duties  in  a  faultless  manner.  Justice  implies  correlative 
rights  and  obligations.  To  say  that  municipal  competition  can 
never  be  justified  tmder  any  circumstances  is  to  attach  too  great 
importance  to  the  public  spirit  of  private  agencies.  Such  a  vir- 
tual guarantee  of  immunity  from  competition  might  defeat  the 

105 


very  purpose  of  the  bill  by  engendering  carelessness  and  indiffer- 
ence to  the  just  demands  of  the  public.  Potential  competition 
may  be  worth  its  cost  in  procuring  adherence  to  the  spirit  as 
well  as  the  letter  of  the  law.  This  section  sets  up  a  substantial 
preventive  of  municipal  competition  in  its  requirement  that  a 
certificate  of  public  convenience  and  necessity  be  issued  from 
the  commission  before  a  municipality  begins  the  original  con- 
struction of  a  public  utility  plant  or  facility.  In  the  light  of 
experience  this  protection  seems  reasonable.  The  proposed 
amendment  might  result  in  anything  but  equitable  results  under 
some  circumstances.  A  property  which  has  been  allowed  to 
deteriorate  excessively  may  have  little  or  no  value  to  a  muni- 
cipality which  is  proposing  to  instal  a  modem  and  highly  effi- 
cient utility.  Where  is  the  justice  of  requiring  a  municipality 
to  predicate  such  a  useful  public  improvement  on  the  purchase 
of  a  useless  property  which  owes  its  present  condition  to  the 
greediness  and  selfishness  of  its  owners? 


Section  281. 

Suggestion.  Strike  out  the  first  sentence  and  substitute  therefor 
the  following:  "Any  municipality  may  determine  to  acquire  the 
property  of  a  public  utility  as  authorized  under  the  provisions  of  this 
act  by  a  vote  of  the  municipal  council,  taken  after  a  public  hearing 
of  which  at  least  thirty  days'  notice  has  been  given,  and  ratified  and 
confirmed  by  a  majority  of  the  electors  voting  thereon,  at  any  general, 
municipal  or  special  election,  held  not  less  than  four  months  after 
the  passage  of  the  vote  of  the  municipal  council." 

Argument  For.  Time  should  be  provided  for  careful  inquiry 
and  consideration  before  a  final  vote  is  taken  committing  a  city 
to  municipal  ownership.  The  suggested  amendment  places  no 
obstacle  in  the  way  of  municipal  ownership,  beyond  providing 
time  for  careful  discussion  and  presentation  of  facts  before  final 
action  is  taken. 

Argument  Against.  The  policies  of  the  several  states  regard- 
ing the  submission  to  the  voters  of  legislative  proposals  of  one 
kind  and  another  differ  radically.  The  section  is  phrased  so 
that  it  may  conform  to  whatever  may  be  the  established  policy 
or  to  whatever  legislation  may  be  enacted  independently  of  this 
bill  to  provide  for  such  contingencies.  Legislation  fixing  th,e 
manner  in  which  municipalities  may  arrive  at  a  determination 

106 


to  embark  on  municipal  ownership  deserves  carefiil  and  thought- 
ful consideration,  but  no  reason  presents  itself  for  segregating 
this  question  from  others  involving  exactly  similar  principles. 


Section  285. 

Suggestion.  In  the  fifth  line,  after  the  word  "received"  insert 
the  following  words:  "Therefor  and  the  damages,  if  any,  caused  by 
the  severance  of  the  property  of  the  utility  purchased  or  to  be  pur- 
chased by  the  municipality,  from  any  property  of  the  utility  pur- 
chased or  to  be  purchased  by  the  municipality." 

In  line  seven  after  the  word  "compensation"  insert  the  words 
"and  damages,  if  any";  in  the  same  line  after  the  word  "taking" 
insert  the  words  "and  severance."  In  line  twenty-six  after  the  word 
"public"  insert  the  words  "and  the  damages,  if  any,  caused  by  the 
severance  aforesaid." 

Argument  For.  The  section  as  it  stands  provides  that  a 
municipality  shall  pay  just  compensation  for  the  property  of  a 
public  utility  taken.  Under  Section  283  a  municipality  may 
or  may  not  purchase  the  whole  or  any  part  of  the  facilities  of  a 
company  which  lies  outside  the  limits  of  the  purchasing  munici- 
pality; and  the  act  does  not  provide  for  the  payment  of  any 
damages  to  the  company  by  reason  of  the  severance  of  the  out- 
lying property  from  inlying  property  purchased.  If  a  company 
has  outlying  property  which  is  severed  from  the  rest  of  its  prop- 
erty, particularly  from  the  source  of  supply  of  the  commodity 
furnished  by  the  company,  very  serious  damages  might  result 
from  such  severance.  Distributing  plants  in  adjoining  towns 
would  be  of  no  value  whatever  except  as  junk  unless  they  were 
connected  with  some  other  source  of  supply.  Similarly,  the 
value  of  an  outlying  source  of  supply  might  be  destroyed  entirely 
if  the  city  were  to  ptuchase  alone  the  inlying  distribution  system. 

Argument  Against.  The  question  raised  by  the  objection 
deserves  serious  consideration  in  each  jurisdiction.  Its  deter- 
mination depends  largely  on  the  local  law  of  the  jurisdiction. 
The  term  "just  compensation"  has  been  used  in  this  connec- 
tion with  apparent  success  for  a  number  of  years  in  at  least  one 
jurisdiction.  The  consequences  of  severing  parts  of  an  entire 
property  from  the  whole  are  so  apparent  as  to  require  no  elabor- 
ation. On  the  other  hand,  the  rule  of  compensation  should  not 
be  so  broad  as  to  violate  the  equities  of  particular  cases  as  they 

107 


arise,  and  to  require  arbitrarily  the  appraisal  and  payment  of 
damages  which  are  the  remote  and  not  the  immediate  conse- 
quences of  the  act  of  purchase. 


Sections  334-336. 

Suggestion.     Eliminate  these  sections  from  the  act  entirely. 

Argument  For.  These  sections  are  retroactive  in  effect.  In 
some  cases  they  might  prove  not  only  embarrassing  but  possibly 
disastrous  to  the  public  utility  complained  of.  If  the  one  com- 
plainant succeeded  in  maintaining  his  right  to  reparation,  any 
and  all  other  customers  might  avail  themselves  of  the  decision 
and  compel  restitution  of  a  portion  of  the  amounts  paid  by  them 
with  interest  from  dates  of  pa5rment.  The  public  utility  thus 
would  never  know  whether  its  statement  of  earnings  was  correct 
until  after  a  lapse  of  at  least  two  years.  It  may  have  distri- 
buted its  earnings  in  the  form  of  dividends  or  have  spent  them 
in  improvements  on  its  property,  and  yet  find  that  they  were 
not  properly  applicable  to  either  of  those  purposes;  and  that 
such  payments  involved  the  necessity  of  making  no  further  dis- 
tributions of  this  character  until  its  indebtedness  upon  all  claims 
for  reparation  have  been  satisfied.  This  condition  of  things  would 
be  perpetual.  A  few  cases  of  this  kind  would  shake  the  credit 
of  public  utilities.  Rates  made  public  and  placed  on  file  with 
the  commission  should  be  assumed  to  be  fair  until  they  have 
been  adjudged  otherwise.  Moreover,  if  it  is  fair  to  give  the 
customer  a  right  to  collect  over-payments  made  by  him  in  the 
past,  in  case  the  rate  paid  is  subsequently  adjudged  to  be  exces- 
sive, it  would  be  equally  fair  to  give  the  utility  the  right  to  col- 
lect an  additional  amount  from  the  customer  if  the  charge  for 
the  past  services,  especially  on  rates  established  by  the  com- 
mission, is  subsequently  adjudged  to  have  been  inadequate. 
But  this  is  not  suggested. 

Argument  Against.  The  courts  have  ample  authority  to 
relieve  public  utilities  from  the  burden  of  unreasonable  rates 
fixed  by  commissions  pending  a  determination  of  their  reason- 
ableness. Where  rates  fixed  by  utilities  themselves  subse- 
quently are  found  to  have  been  less  than  reasonable,  the  utilities 
have  no  just  cause  to  complain. 

These  sections  do  not  create  a  right  accruing  to  customers 
to  reparation  for  excessive  amounts  paid  in  the  past.     The  right 

108 


now  exists  and  always  has  existed.  Furthermore,  the  right  in 
the  absence  of  legislation  of  this  character  may  be  asserted, 
ordinarily,  any  time  within  a  period  of  six  years  following  the 
payment.  Every  business  transaction  is  likely  to  give  rights  to 
a  cause  of  action  which  may  be  asserted  by  one  party  to  the 
prejudice  of  another  within  the  period  of  the  statute  of  limita- 
tions, and  accordingly  no  statement  of  corporate  liability 
ever  is  entirely  accurate.  Far  from  being  retroactive  in  the 
sense  that  new  rights  are  created  pertaining  to  past  transactions, 
the  sections  in  question  cut  off  immediately  in  many  cases 
inchoate  rights.  Like  the  remainder  of  the  bill  these  sections 
simply  provide  a  new  remedy  for  the  assertion  of  existing  rights. 


Section  338. 

Suggestion.  Strike  out  the  section  as  contained  in  the 
bill  and  insert  the  following  in  place  thereof:  "Any  person  in  interest 
being  dissatisfied  with  any  order  or  decision  of  the  commission  may 
commence  an  action  in  the  court  of  record  of  general  jurisdiction  in 
such  matters  and  for  the  county  in  which  the  commission  has  its 
principal  office.  Such  action  may  be  begun  by  filing  in  such  court 
a  transcript  of  the  complaint,  answer  and  final  order  of  the  com- 
mission, and  it  shall  not  operate  as  a  supersedeas  unless  the  commis- 
sion or  court  shall  so  order.  All  the  proceedings  before  the  said 
commission,  including  any  of  the  evidence  which  either  party  claims 
to  be  material,  if  a  record  thereof  has  been  kept,  the  requests  for 
rulings  made  by  the  parties,  the  findings  of  the  commission  and  any 
orders  issued  thereon,  may  be  used  in  such  action.  If  the  court  de- 
cides that  the  commission  has  erred  in  point  of  substantive  law,  the 
proceedings  shall  be  remanded  to  the  commission  with  directions  to 
make  such  new  or  further  amended  orders  or  to  take  such  other 
action  as  the  opinion  of  the  court  upon  the  point  or  points  of  law 
submitted  to  it  may  require.  Provided,  however,  that  no  such 
action  shall  be  sustained  on  the  ground  of  improper  admission  or 
rejection  of  evidence,  or  for  any  error  as  to  any  matter  of  pleading 
or  procedure,  or  for  any  other  matter,  if  in  the  opinion  of  the  court 
the  error  complained  of  will  not  injuriously  affect  the  substantial 
rights  of  the  parties." 

Argument  For.  As  the  section  now  stands,  the  court  has 
appellate  jurisdiction  only  in  case  the  order  of  the  commission 
violates  a  "provision"  of  law.  This  limits  the  jurisdiction  of 
the  court  to  questions  arising  upon  the  construction  of  statutes 

109 


and  leaves  the  commission  supreme  as  to  the  interpretation  of 
all  questions  of  common  law.  Questions  of  admissibility  of 
evidence,  matters  of  procedure  or  other  secondary  matters,  or 
any  other  points  which,  in  the  opinion  of  the  court,  do  not  go 
to  the  merits  of  the  case,  should  not  be  subjects  of  appeal. 

Argument  Against.  The  argument  favorable  to  the  pro- 
posed amendment  is  directed  to  that  portion  of  Section  338 
which  authorizes  an  appeal  to  the  courts  from  an  order  of  the 
commission  on  the  ground  that  if  enforced,  the  order  would 
violate  "a  provision  or  provisions  of  any  law  of  this  State  or  of 
the  Constitution  of  this  State  or  of  the  United  States."  It 
would  seem  that  this  purpose  would  be  accomplished  equally 
well  without  the  circumlocution  of  the  proposed  amendment 
by  substituting  for  the  words  objected  to  those  which  are  quoted 
in  the  following  paraphrase  of  the  original  section:  Any  person 
being  dissatisfied  with  any  order  of  the  commission  may  com- 
mence an  action  in  court  to  vacate  such  order  on  the  ground  that 
if  enforced  the  order  would  violate  "any  law  of  this  State  or 
the  Constitution  of  this  State  or  of  the  United  States."  Surely, 
this  phraseology  would  give  the  court  full  jurisdiction  to  hear 
any  and  every  question  of  substantive  law  that  might  be  raised. 
It  must  be  evident,  however,  that  extended  argimient  and 
superlative  eloquence  would  be  required  to  convince  a  court 
that  the  term  "a,  provision  of  law"  comprehends  only  statute 
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114 


APPENDIX   C 

Report  to  the  National  Civic  Federation  Commission 
on  Public  Ownership  and  Operation. 

Your  Committee  on  Investigation  beg  to  report  as  follows: 

After  our  appointment  on  October  5,  1905,  we  met  and  appointed 
a  sub-committee  to  prepare  a  plan  of  procedure  and  investigation. 
It  was  decided  that  the  committee  should  visit  a  number  of  under- 
takings in  certain  American  cities,  and  then  should  go  abroad  and 
make  a  similar  investigation  in  certain  cities  in  Great  Britain,  com- 
paring the  methods  and  results  of  municipal  and  private  ownership. 
Much  attention  was  given  to  the  investigation  in  Great  Britain, 
because  it  was  felt  that  the  American  public  was  not  so  familiar 
with  conditions  abroad  as  at  home,  and  because  in  the  contests  that 
have  been  waged  for  public  ownership,  allusion  has  always  been 
made  and  prominence  given  to  conditions  in  British  cities. 

Your  committee  decided  to  employ  both  company  and  municipal 
men  as  experts,  so  that  when  investigating  a  gas  plant,  for  example, 
there  should  be  ordinarily  one  expert  who  had  been  employed  by  a 
private  gas  company  and  another  to  act  with  him  who  had  been 
employed  by  a  municipality.  A  long  series  of  questions  was  pre- 
pared and  various  special  reports  were  called  for,  some  from  the 
members  of  the  committee  who  were  detailed  for  this  piupose  and 
some  from  outside  experts  employed  to  investigate  specific  matters. 
All  of  these  reports  and  schedules  have  been  carefully  prepared  and 
are  published  herewith.  While  it  may  appear  upon  a  superficial 
glance  that  there  is  too  much  of  this  work,  we  trust  it  will  be  appre- 
ciated by  the  student  and  by  those  particularly  interested,  and 
that  these  statistics  and  reports  will  do  great  good  in  the  future  as 
works  of  reference  upon  this  important  subject. 

We  wish  here,  at  the  beginning  of  our  report,  to  tender  our  sin- 
cere thanks  to  the  gentlemen  in  charge  of  the  public  utilities  in  the 
cities  we  visited  in  the  United  States  and  Great  Britain  for  their 
polite  attention  and  thoughtful  consideration.  Nothing  could  have 
been  fairer  or  kinder  than  the  treatment  that  they  gave  us.  We 
examined  their  plants;  we  asked  for  detailed  reports  upon  a  long 
list  of  matters,  which  were  cheerfully  given.  Whatever  may  be  our 
opinion  of  the  merits  of  municipal  or  private  ownership,  we  are 
unanimous  that  no  more  courteous  treatment  could  have  been  ac- 
corded any  one. 

115 


It  is  difficult  to  give  positive  answers  of  universal  application  to 
the  questions  arising  as  to  the  success  or  failure  of  municipal  owner- 
ship as  compared  with  private  ownership.  The  local  conditions 
affecting  particular  plants  are,  in  many  cases,  so  peculiar  as  to  make 
a  satisfactory  comparison  impossible,  and  it  is  very  difficult  to- 
estimate  the  allowance  that  should  be  made  for  these  local  condi- 
tions. For  instance,  in  making  deductions  from  the  financial  con- 
ditions of  Wheeling,  as  affected  by  its  gas  plant,  as  compared  with 
those  of  Atlanta  and  Norfolk  with  their  private  plants,  allowance 
must  be  made  for  the  presence  of  natural  gas  in  Wheeling.  Again, 
in  comparing  the  public  water  works  of  Syracuse  with  the  private 
water  works  of  Indianapolis  from  the  point  of  view  of  the  success 
or  failure  of  municipal  operation,  geographical  conditions  must  be 
taken  into  consideration.  The  situation  at  Syracuse  is  extremely 
favorable  to  the  establishment  of  an  efficient  plant  with  comparatively 
little  effort  on  the  part  of  its  management.  At  Indianapolis  the 
conditions  are  unfavorable.  In  Sjrracuse  .the  water  flows  to  the 
city  by  gravity;  in  Indianapolis  it  must  be  pumped.  So  we  might 
go  through  the  various  cities  here  and  abroad  that  have  been  visited 
and  show  that  the  results  were  affected  favorably  or  unfavorably 
by  special  conditions  applicable  to  each  city. 

Further,  the  difficulty  of  reaching  satisfactory  results  by  the 
comparative  method  is  not  confined  to  special  or  local  conditions. 
It  is  true,  as  well,  of  much  broader  questions.  Thus  any  attempt 
to  compare  municipal  with  private  electric  light  plants  in  the  United 
States  would  be  fruitless  if  allowance  were  not  made  for  the  fact 
that  in  most  cases  such  municipal  plants  are  confined  to  street  light- 
ing and  may  not  do  commercial  business.  Allowance  must  be  made 
also  for  the  fact  that  many  municipal  plants  have  had  a  struggle  to 
exist  in  the  face  of  unsympathetic  public  opinion.  Again,  in  England 
consideration  must  be  given  to  the  fact  that  the  municipal  electric 
light  and  street  railway  plants  have  permanent  rights,  while  the 
rights  of  the  private  companies  operating  these  particular  utilities 
are  limited  as  to  the  length  of  their  existence,  many  street  railway 
franchises  expiring  twenty-one  years  after  they  were  granted. 

Finally,  not  only  must  it  be  borne  in  mind  that  the  social  and 
political  conditions  which  characterize  the  two  countries  find  ex- 
pression in  their  private  and  public  systems,  but  we  must  consider 
the  difference  in  the  nature  of  the  two  peoples  which  causes  them 
to  adopt  different  ideas  and  views  to  the  expediency  of  certain  things. 
In  other  words,  a  measure  of  success  in  the  municipal  management 
of  public  utilities  in  England  should  not  be  regarded  as  necessarily 
indicating  that  the  municipal  management  of  the  same  utilities  in 

ii6 


this  country  would  be  followed  by  a  like  measure  of  success.  Con- 
ditions are  quite  different  in  the  two  countries,  as  will  be  seen  from 
an  examination  of  the  various  reports  that  follow. 

There  are  some  general  principles  which  we  wish  to  present  as 
practically  the  unanimous  sentiment  of  our  committee. 

First,  we  wish  to  emphasize  the  fact  that  the  public  utilities 
studied  are  so  constituted  that  it  is  impossible  for  them  to  be  regu- 
lated by  competition.  Therefore,  they  must  be  controlled  and 
regulated  by  the  government;  or  they  must  be  left  to  do  as  they 
please;  or  they  must  be  operated  by  the  public.  There  is  no  other 
course.  None  of  us  is  in  favor  of  leaving  them  to  their  own  will, 
'  and  the  question  is  whether  it  is  better  to  regulate  than  to  operate. 

There  are  no  particular  reasons  why  the  financial  results  from  pri- 
vate or  public  operation  should  be  different  if  the  conditions  are  the 
same.  In  each  case  it  is  a  question  of  the  proper  man  in  charge  of 
the  business  and  of  local  conditions. 

We  are  of  the  opinion  that  a  public  utility  which  concerns  the 
health  of  the  citizens  should  not  be  left  to  individuals,  where  the 
temptation  of  profit  might  produce  disastrous  results,  and  therefore 
it  is  our  judgment  that  undertakings  in  which  the  sanitary  motive 
largely  enters  should  be  operated  by  the  public. 

We  have  come  to  the  conclusion  that  mum'cipal  ownership  of 
public  utilities  should  not  be  extended  to  revenue-producing  indus- 
tries which  do  not  involve  the  public  health,  the  public  safety,  public 
transportation,  or  the  permanent  occupation  of  public  streets  or 
grounds,  and  that  municipal  operation  should  not  be  undertaken 
solely  for  profit. 

We  are  also  of  the  opinion  that  all  future  grants  to  private  com- 
panies for  the  construction  and  operation  of  public  utilities  should 
be  terminable  after  a  certain  fixed  period,  and  that  meanwhile  cities 
should  have  the  right  to  purchase  the  property  for  operation,  lease 
or  sale,  paying  its  fair  value. 

To  carry  out  these  recommendations  effectively  and  to  protect 
the  rights  of  the  people,  we  recommend  that  the  various  states  should 
give  to  their  municipalities  the  authority,  upon  popular  vote  under 
reasonable  regulations,  to  build  and  operate  public  utilities,  or  to 
build  and  lease  the  same,  or  to  take  over  works  already  constructed. 
In  no  other  way  can  the  people  be  put  upon  a  fair  trading  basis  and 
obtain  from  the  individual  companies  such  rights  as  they  ought  to 
have.  We  believe  that  this  provision  will  tend  to  make  it  to  the 
enlightened  self-interest  of  the  public  utility  companies  to  furnish 
adequate  service  upon  fair  terms,  and  to  this  extent  will  tend  to 

117 


render  it  unnecessary  for  the  public  to  take  over  the  existing  utilities 
or  to  acquire  new  ones. 

Furthermore,  we  recommend  that  provision  be  made  for  a  com- 
petent public  authority,  with  power  to  require  for  all  public  utilities 
a  uniform  system  of  records  and  accounts,  giving  all  financial  data 
and  all  information  concerning  the  quality  of  service  and  the  cost 
thereof,  which  data  shall  be  published  and  distributed  to  the  public 
like  other  official  reports;  and  also  that  no  stock  or  bonds  for  public 
utilities  shall  be  issued  without  the  approval  of  some  competent 
public  authority. 

We  also  recommend  the  consideration  of  "the  sliding  scale," 
which  has  proved  successful  in  some  cases  in  England  with  reference 
to  gas  and  has  been  adopted  in  Boston.  By  this  plan  the  authorized 
capitalization  is  settled  by  official  investigation,  and  a  standard  rate 
of  dividend  is  fixed,  which  may  be  increased  only  when  the  price  of 
gas  has  been  reduced.  fThe  subway  contracts  and  their  operation 
in  Boston  and  New  York  are  also  entitled  to  full  consideration. 

In  case  the  management  of  public  utilities  is  left  with  private 
companies,  the  public  should  retain  in  all  cases  an  interest  in  the 
growth  and  profits  of  the  future,  either  by  a  share  of  the  profits  or  a 
reduction  of  the  charges,  the  latter  being  preferable,  as  it  inures  to 
the  benefit  of  those  who  use  the  utilities,  while  a  share  of  the  profits 
benefits  the  taxpayers. 

Our  investigations  teach  us  that  no  municipal  operation  is  likely 
to  be  highly  successful  that  does  not  provide  for: 

First — An  executive  manager  with  full  responsibility,  holding  his 
position  during  good  behavior. 

Second — Exclusion  of  political  influence  and  personal  favoritism 
from  the  management  of  the  undertaking. 

Third — Separation  of  the  finances  of  the  undertaking  from  those 
of  the  rest  of  the  city. 

Fourth — Exemption  from  the  debt  limit  of  the  necessary  bond 
issues  for  revenue-producing  utilities,  which  shall  be  a  first  charge 
upon  the  property  and  revenues  of  such  undertaking. 

We  wish  to  bring  to  your  consideration  the  danger  here  in  the 
United  States  of  turning  over  these  public  utilities  to  the  present 
government  of  some  of  our  cities.  vSome,  we  know,  are  well  governed, 
and  the  situation  on  the  whole  seems  to  be  improving,  but  they  are 
not  up  to  the  government  of  British  cities.  We  found  in  England 
and  Scotland  a  high  type  of  municipal  government,  which  is  the  result 
of  many  years  of  struggle  and  improvement.  Business  men  seem 
to  take  a  pride  in  serving  as  city  councillors  or  aldermen,  and  the 
government  of  such  cities  as  Glasgow,  Manchester,  Birmingham  and 

ii8 


others  includes  many  of  the  best  citizens  of  the  city.  These  condi- 
tions are  distinctly  favorable  to  municipal  operation. 

In  the  United  States,  as  is  well  known,  there  are  many  cities  not 
in  such  a  favorable  condition.  It  is  charged  that  the  political  activity 
of  public  service  corporations  has  in  many  instances  been  responsible 
for  the  unwillingness  or  inability  of  American  cities  to  secure  a  higher 
type  of  public  service.  This  charge  we  believe  to  be  true.  How- 
ever, there  seems  to  be  an  idea  with  many  people  that  the  mere 
taking  by  the  city  of  all  its  public  utilities  for  municipal  operation 
will  at  once  result  in  ideal  municipal  government  through  the  very 
necessity  of  putting  honest  and  competent  citizens  in  charge.  While 
an  increase  in  the  number  and  importance  of  municipal  functions 
may  have  a  tendency  to  induce  men  of  a  higher  type  to  become 
public  officials,  we  do  not  believe  that  this  of  itself  will  accomplish 
municipal  reform.  We  are  unable  to  recommend  municipal  owner- 
ship as  a  political  panacea. 

In  many  cases  in  the  United  States  the  people  have  heedlessly 
given  away  their  rights  and  reserved  no  sufficient  power  of  control 
or  regulation,  and  we  believe  that  corruption  of  public  servants  has 
sprung,  in  large  measure,  from  this  condition  of  things.  With  the 
regulations  that  we  have  advised,  with  the  publication  of  accounts 
and  records  and  systematic  control,  the  danger  of  the  corruption  of 
public  officials  is  very  much  reduced. 

To  simi  up,  certain  of  the  more  important  of  our  conclusions  are: 

ist.  Public  utilities,  whether  in  public  or  in  private  hands,  are 
best  conducted  under  a  system  of  legalized  and  regulated  monopoly. 

2nd.  Public  utilities  in  which  the  sanitary  motive  largely  enters 
should  be  operated  by  the  public. 

3rd.  The  success  of  municipal  operation  of  public  utilities  de- 
pends upon  the  existence  in  the  city  of  a  high  capacity  for  municipal 
government. 

4th.  Franchise  grants  to  private  corporations  should  be  termi- 
nable after  a  fixed  period  and  meanwhile  subject  to  purchase  at  a 
fair  value. 

5th.  Municipalities  should  have  power  to  enter  the  field  of 
municipal  ownership  upon  popular  vote  under  reasonable  regulation. 

6th.  Private  companies  operating  public  utilities  should  be 
subject  to  public  regulation  and  examination  under  a  system  of 
uniform  records  and  accounts  and  of  full  publicity. 

7th.  The  committee  takes  no  position  on  the  question  of  the 
general  expediency  of  either  private  or  public  ownership.  The 
question  must  be  solved  by  each  municipality  in  the  light  of  local 
conditions.     What  may  be  possible  in  one  locality  may  not  be  in 

119 


another.  In  some  cities  the  companies  may  so  serve  the  public  as 
to  create  no  dissatisfaction  and  nothing  might  be  gained  by  experi- 
menting with  municipal  ownership.  Again,  the  government  of  one 
city  may  be  good  and  capable  of  taking  charge  of  these  public  util- 
ities, while  in  another  it  may  be  the  reverse.  In  either  case  the 
people  must  remember  that  it  requires  a  large  class  of  able  men  as 
city  officials  to  look  after  these  matter's.  They  must  also  remember 
that  municipal  ownership  will  create  a  large  class  of  employes  who 
may  have  more  or  less  political  influence. 

We  trust  that  these  suggestions  may  aid  the  people,  whenever 
the  time  may  come,  in  making  a  wise  decision. 

The  above  report  is  approved  by  the  following  nineteen  members 
of  the  Committee  of  Twenty-one.  Mr.  Mahon  was  kept  away 
from  the  sessions  by  sickness.  Mr.  Walton  Clark  wrote  a  separate 
minority  report. 

Melville  E.  Ingalls,  Chairman. 

Edward  W.  Bemis, 

William  J.  Clark, 

John  R.  Commons, 

Charles  L.  Edgar, 

Walter  L.  Fisher, 

Frank  J.  Goodnow, 

John  H.  Gray, 

Timothy  Healy, 

Daniel  J.  Keefe, 

MiLO  R.  Maltbie, 

H.  B.  F.  Macparland, 

F.    J.    MCNULTY, 

Edward  A.  Moffett,  Secretary, 

Frank  Parsons, 

Albert  Shaw, 

J.  W.  Sullivan, 

Talcott  Williams, 

Albert  E.  Winchester. 


1 20 


MESSRS.  CHARLES  L.  EDGAR  AND  W.  J.  CLARK  DISSENT 
AS  TO  PARTICULARS. 

We,  the  undersigned,  dissent  from  the  report  of  the  investigating 
committee,  as  follows: 

I  St.     The  report  says: 

"We  have  come  to  the  conclusion  that  municipal  ownership  of 
public  utilities  should  not  be  extended  to  revenue-producing  indus- 
tries which  do  not  involve  the  public  health,  the  public  safety,  pub- 
lic transportation,  or  the  permanent  occupation  of  public  streets  or 
grounds,  and  that  municipal  operation  should  not  be  solely  for  profit." 

This  sentence  is  so  drawn  that  to  a  casual  reader  it  implies  that 
the  opposite  is  advisable.     From  this  we  strongly  dissent. 

2nd.     The  report  says: 

*'To  carry  out  these  recommendations  effectively  and  to  protect 
the  rights  of  the  people,  we  recommend  that  the  various  states 
should  give  to  their  municipalities  the  authority,  upon  popular  vote 
under  reasonable  regulations,"  etc. 

The  words  "under  reasonable  regulations"  were  put  into  the 
report  at  the  suggestion  of  Chas.  L.  Edgar,  and  were  intended  by 
him  to  mean  such  regulations  as  would  compel  deliberate  considera- 
tion not  only  by  the  people  but  by  their  representatives,  and  would 
consequently  prevent  the  superficial  attractiveness  of  the  scheme 
from  overriding  the  sober  second  thought  of  the  people.  We  strongly 
dissent  from  any  definition  of  "regulations"  which  does  not  cover 
these  points. 

3rd.  The  second  and  fifth  conclusions  in  the  latter  part  of  the 
report,  being  merely  repetitions  of  previous  statements,  are,  of  course, 
subject  to  the  same  dissents. 

Charles  L.  Edgar, 
W.  J.  Clark 


MINORITY  REPORT. 

To  THE  Commission  on  Public  Ownership  of  the 
National  Civic  Federation: 
Gentlemen: — I  have  the  honor  to  submit  the  following  report  of 
the  minority  of  the  Committee  on  Investigation,  appointed  by  you 
under  a  resolution  as  follows: 

Resolved,  That  Melville  E.  Ingalls,  Talcott  Williams,  W.  D. 
Mahon,  Frank  J.  Goodnow,  Walton  Clark,  Dr.  Albert  Shaw,  Edward 
W.  Bemis,  John  H.  Gray,  Walter  L.  Fisher,  Timothy  Healy,  William 

121 


J.  Clark,  H.  B.  F.  MacFarland,  Daniel  J.  Keefe,  Frank  Parsons,  John 
R.  Commons,  J.  W.  Sullivan,  Leo  S.  Rowe,  F.  J.  McNulty,  Albert 
E.  Winchester,  Charles  L.  Edgar,  Milo  R.  Maltbie,  be  appointed  a 
Committee  of  Twenty-one  to  investigate  in  this  country  and  in 
Europe  the  advisability  of  private  and  municipal  ownership  affecting 
gas,  water,  electric  power  and  light,  and  street  railways,  and  that 
this  Committee  of  Twenty-one  be  empowered  to  fill  vacancies  or 
add  to  their  number,  subject  to  the  approval  of  the  Chair. 

I  regret  that  my  understanding  of  your  charge  to  the  Committee 
of  Twenty-one,  to  investigate  and  report  to  you,  as  per  the  above 
resolution,  leads  me  to  the  necessity  of  presenting  a  minority  report. 

I  agree  with  my  associates  on  the  importance  of  directing  your 
attention  to  the  dangers  and  difficulties  attending  municipal  owner- 
ship. I  do  not  dissent  from  their  conclusion  that  companies  en- 
trusted with  franchises  and  charters  for  the  operation  of  so-called 
public  service  industries  should  be  subject  to  regulation.  I  write  a 
minority  report  because,  if  I  correctly  understand  your  instructions 
to  your  Investigating  Committee,  the  majority  report  does  not,  in 
its  form  and  scope,  answer  your  reasonable  expectation;  and  because 
I  am  not  able  to  agree  with  what  I  understand  to  be  the  meaning  of 
some  few  of  the  statements  made  therein. 

Recognizing  the  almost  supreme  importance  of  an  adequate  and 
cheap  supply  of  pure  water,  I  dissent  from  one  of  the  recommenda- 
tions of  my  associates,  in  effect  that  water  works  should  be  operated 
by  public  bodies.  I  dissent  for  the  reason  that  my  study  of  the 
report  of  the  water  works  expert  employed  by  your  committee,  and 
my  personal  investigations,  lead  me  to  the  conclusion  that  the  water 
companies  have  made  the  more  intelligent  efforts  toward  adequacy 
and  purity  of  supply,  and  that,  all  conditions  considered,  the  result 
of  their  efforts  has  been  and  is  a  better  and  cheaper  water  supply  and 
service  than  that  maintained  by  the  mtmicipal  water  works  de- 
partments. 

I  agree  with  the  majority  that  such  governmental  conditions  as 
exist  in  Glasgow,  Manchester  and  Birmingham  are  "distinctly 
favorable"  to  municipal  ownership,  as  they  must  be  to  every  urban 
activity,  public  or  private.  The  fact  that  the  results  of  the  investi- 
gations we  have  made  in  these  well-governed  cities  have  not  led  my 
associates  to  commend  municipal  ownership  as  we  have  there  ob- 
served it,  or  to  recommend  that  our  American  cities  adopt  muni- 
cipal ownership,  is  pregnant  with  meaning,  and  indicates  another 
point  upon  which  we  are  in  accord. 

My  knowledge  of  the  question,  had  from  personal  investigation, 
and  from  a  study  of  the  reports  of  the  experts  employed  by  the 

122 


commission,  and  of  the  writings  of  its  members  leads  me  to  the  con- 
clusion that  the  city  and  citizens  of  Glasgow,  Manchester  and  Bir- 
mingham, as  well  as  of  the  other  municipalities  investigated,  are  not 
so  well  served  by  their  public  service  trading  departments  as  the 
cities  and  citizens  of  London,  Newcastle,  Sheffield,  Dublin  and 
Norwich  are  by  companies  operating  similar  trading  industries,  and 
that  there  is  no  element  of  blessing  in  the  municipalization  of  the 
former  cities  to  compensate  for  the  indifferent  character  of  the  ser- 
vice rendered. 

I  dissent  from  the  statement  of  my  associates  that  "we  take  no 
position  on  the  question  of  general  expediency  of  either  public  or 
private  ownership."  I  come  from  the  study  of  this  question,  and 
from  the  investigations  in  which  I  have  had  a  share,  including  that 
of  the  municipal  plants  selected  as  being  the  most  successful  in 
Great  Britain  and  in  this  country,  ready,  and  with  confidence,  to 
take  a  position  on  the  question  of  general  expediency. 

Because  the  investigation,  in  which,  through  your  favor,  I  have 
had  the  honor  to  have  a  part,  has  convinced  me  that  municipal 
ownership  has  not  proven  equal  to  private  ownership  in  benefits  to 
the  consumer,  citizen  or  city,  I  am  not  able  to  agree  with  the  majority 
of  the  Committee  that  the  way  shoidd  be  left  open  for  any  muni- 
cipality to  undertake  any  trading  operation,  without  special  authori- 
zation by  the  legislature  of  the  state  wherein  it  is  located.  I  cannot 
believe  that  the  prescribed  remedy  for  any  ill  should  be  a  worse  ill, 
and  I  cannot  recommend  that  a  municipality  suffering,  or  believing 
that  it  suffers,  under  company  administration  of  a  public  utility, 
should  be  given  the  right  to  engage  in  the  operation  of  such  utility 
for  itself,  without  such  a  course  of  procedure  as  will  make  sure  that 
the  sober  second  thought  of  the  people  shall  have  ample  opportunity 
for  development  and  expression,  before  the  community  is  committed 
to  municipal  ownership,  with  the  accompanying  dangers  and  diffi- 
culties, of  which  you  are  warned  in  the  majority  report. 

Because  I  believe  that  the  general  credit  of  municipalities  shoiild 
be  conserved  for  the  benefit  of  public  and  necessary  improvements, 
from  which,  in  the  nature  of  things,  private  enterprise  is  excluded; 
and  because  I  believe  that  a  mimicipality  should  not  be  permitted 
in  any  event  to  engage  in  any  trading  enterprise  that  will  not  pay 
its  own  way,  and  have  the  confidence  of  the  citizens  as  financially 
sound,  I  recommend  that  municipalities  be  prohibited,  by  statute, 
from  making  investments  in  trading  operations,  except  with  money 
borrowed  on  mortgage,  or  otherwise,  the  loan  being  secured  by  a 
lien  on  the  plant  in  which  it  is  invested,  and  on  the  right  to  operate 
the  same,  and  on  these  only. 

123 


Because  I  believe  that  it  is  practically  impossible  to  secure  pri- 
vate funds  for  investment  in  an  enterprise  subject  to  purchase  by  a 
municipality,  at  a  date  to  be  selected  by  the  municipality;  and  be- 
cause I  believe  that  the  impossibility  of  so  securing  private  invest- 
ment may,  and  often  will,  work  a  social  harm  to  a  community,  I 
dissent  from  the  opinion  of  the  majority  that  a  city  should  have  the 
right  to  piu-chase,  at  its  option,  the  property  of  public  service  cor- 
porations for  operation,  lease  or  sale. 

I  believe  in  state  regulation  and  protection  of  public  service 
companies.  I  do  not  understand  that  your  committee  was  charged 
with  the  duty  of  recommending  to  you  a  form  of  regulation.  I 
know  that  your  committee  made  no  special  study  of  this  subject. 
Therefore  I  am  not  prepared  to  propose  any  detailed  plan  of  regu- 
lation. 

Finally,  regretting  to  be  in  any  degree  in  conflict  of  opinion  with 
my  associates,  I  may  still  satisfy  my  sense  of  duty  to  my  fellow- 
citizens  and  my  sense  of  obligation  to  you  for  the  honor  of  a  share 
in  this  important  work,  by  recording  the  conviction  I  am  under  at 
the  close  of  this  investigation. 

I  am  convinced  that  the  condition  of  the  British  people,  indi- 
vidually or  collectively,  has  not  been  improved  by  the  municipali- 
zation of  the  industries  we  have  investigated. 

I  believe  that  political  and  social  conditions  in  the  United  States 
are  less  favorable  to  the  success  of  municipal  ownership  than  are  the 
same  conditions  in  Great  Britain. 

I  find  this  conclusion  strengthened  by  our  investigation  into 
municipalized  industries  in  the  United  States. 

I  am  convinced  that,  under  American  conditions,  the  system  of 
private  ownership  of  public  utilities  is  best  for  the  citizens  and 
consumers. 

I  recommend  state  regulation  and  protection  of  public  service 
companies,  provided  by  statute,  and  as  far  as  possible  automatic 
in  its  application  and  operation. 

I  realize  that  in  the  main  the  majority  and  the  minority  of  your 
committee  are  in  accord.  Wherein  we  differ,  the  minority  appeals 
with  confidence  to  a  careful  reading  of  the  records  of  your  com- 
mittee for  judgment  as  to  the  reasonableness  of  its  conclusions  and 
recommendations. 

Respectfully  submitted, 

Walton  Clark. 


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